-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HirfilGEYRAVLMe7gnrYwpF1usiVJ2TlsZSZbN92MKWzprfU8GAQ+7ieczB27WJ+ iHXQ8BRx8f6WxrXGfB2NnA== 0000950134-98-008317.txt : 19981029 0000950134-98-008317.hdr.sgml : 19981029 ACCESSION NUMBER: 0000950134-98-008317 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 45 FILED AS OF DATE: 19981028 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APARTMENT INVESTMENT & MANAGEMENT CO CENTRAL INDEX KEY: 0000922864 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 841259577 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-60355 FILM NUMBER: 98732309 BUSINESS ADDRESS: STREET 1: 1873 S BELLAIRE ST STREET 2: SUITE 1700 CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE ST STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-60355-01 FILM NUMBER: 98732310 BUSINESS ADDRESS: STREET 1: SKADDEN,ARPS, SLATE,MEAGHER & FLOM LLP STREET 2: 919 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 S-4/A 1 AMENDMENT NO. 3 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1998 REGISTRATION NO. 333-60355 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 co-registrant as specified in its charter) MARYLAND 84-1275621 DELAWARE 84-1259577 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization) 1873 SOUTH BELLAIRE STREET, 17TH FLOOR PETER KOMPANIEZ DENVER, COLORADO 80222 PRESIDENT (303) 757-8101 1873 SOUTH BELLAIRE STREET, 17TH FLOOR DENVER, COLORADO 80222 (303) 757-8101 FAX: (303) 753-9538 (Address, including zip code, and telephone number, (Name, address, including zip code, and telephone including area code, of co-registrants' principal number, executive offices) including area code, of agent for service)
--------------------- Copy to: JONATHAN L. FRIEDMAN SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 SOUTH GRAND AVENUE LOS ANGELES, CALIFORNIA 90071 (213) 687-5000 FAX: (213) 687-5600 --------------------- Approximate Date of Commencement of Proposed Sale to the Public: From time to time after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and if there is compliance with General Instruction G, check the following box. [ ] If the Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2) - ------------------------------------------------------------------------------------------------------------------------------ Preferred Stock, par value $.01 per share(3).................... - ------------------------------------------------------------------------------------------------------------------------------ Class A Common Stock, par value $.01 per share(3)............... - ------------------------------------------------------------------------------------------------------------------------------ Partnership Preferred Units(4).... $200,000,000 $200,000,000 - ------------------------------------------------------------------------------------------------------------------------------ Partnership Common Units(4)....... $200,000,000 $200,000,000 - ------------------------------------------------------------------------------------------------------------------------------ Total.................... $1,000,000,000 (1) $1,000,000,000 $295,000 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
(1) To be determined, from time to time, by the Registrants in connection with the issuance of the securities registered hereunder. (2) Calculated pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933, as amended. (3) To be issued by Apartment Investment and Management Company ("AIMCO"). The amount of such securities registered hereby includes (i) shares of Preferred Stock and Class A Common Stock of AIMCO issuable in exchange for Partnership Preferred Units or Partnership Common Units of AIMCO Properties, L.P. tendered for redemption pursuant to the agreement of limited partnership of AIMCO Properties, L.P., plus such additional number of shares of Preferred Stock and Class A Common Stock as may be issuable pursuant to the antidilution adjustment provisions of such agreement and (ii) shares of Class A Common Stock of AIMCO issuable upon conversion of shares of Preferred Stock of AIMCO. In no event will the aggregate maximum offering price of all securities registered under this Registration Statement by AIMCO exceed $600,000,000. (4) To be issued by AIMCO Properties, L.P. 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This filing includes (i) a base prospectus to be used for the offering and issuance of securities in connection with acquisitions of businesses, properties, securities or other assets reflecting certain changes, (ii) 45 additional prospectus supplements relating to exchange offers for units of limited partnership interest in the limited partnerships set forth below, (iii) a form of a Letter of Transmittal and (iv) a form of Cover Letter to the holders of the partnership units. Angeles Income Properties, Ltd. II Angeles Income Properties, Ltd. III Angeles Income Properties, Ltd. IV Angeles Income Properties, Ltd. 6 Angeles Opportunity Properties, Ltd. Angeles Partners VII Angeles Partners VIII Angeles Partners IX Angeles Partners X Angeles Partners XI Angeles Partners XII Angeles Partners XIV Century Properties Fund XVI Century Properties Fund XVIII Century Properties Fund XIX Century Properties Growth Fund XXII Consolidated Capital Institutional Properties/2 Consolidated Capital Institutional Properties/3 Consolidated Capital Properties III Consolidated Capital Properties IV Consolidated Capital Properties V Consolidated Capital Properties VI Davidson Diversified Real Estate I, L.P. Davidson Diversified Real Estate II, L.P. Davidson Diversified Real Estate III, L.P. Davidson Growth Plus, L.P. Davidson Income Real Estate, L.P. Drexel Burnham Lambert Real Estate Associates II Fox Strategic Housing Income Partners HCW Pension Real Estate Fund Limited Partnership Investors First-Staged Equity Johnstown/Consolidated Income Partners Multi-Benefit Realty Fund '87-1-Class A Multi-Benefit Realty Fund '87-1-Class B National Property Investors 8 Riverside Park Associates L.P. Shelter Properties III Shelter Properties VI Shelter Properties VII Limited Partnership Springhill Lake Investors Limited Partnership U.S. Realty Partners Limited Partnership United Investors Growth Properties United Investors Growth Properties II United Investors Income Properties Winthrop Growth Investors 1 Limited Partnership In accordance with Rule 472(b) the Registrants have not refiled the 45 prospectus supplements filed with Amendment No. 2 since no changes have yet been made to such prospectus supplements. The 45 prospectus supplements filed with Amendment No. 2 continue to remain part of this Registration Statement and will be refiled with future Amendments when changes are made to a particular prospectus supplement. Baywood Partners, Ltd. Brampton Associates Partnership Buccaneer Trace Limited Partnership Burgundy Court Associates, L.P. Calmark/Fort Collins, Ltd. Calmark Heritage Park II Ltd. Casa Del Mar Associates Limited Partnership Catawba Club Associates, L.P. Cedar Tree Investors Limited Partnership Chapel Hill, Limited Chestnut Hill Associates Limited Partnership Coastal Commons Limited Partnership DFW Apartment Investors Limited Partnership DFW Residential Investors Limited Partnership Four Quarters Habitat Apartment Associates, Ltd. Georgetown of Columbus Associates, L.P. La Colina Partners, Ltd. Lake Eden Associates, L.P. Landmark Associates, L.P. Minneapolis Associates II Limited Partnership Northbrook Apartments, Ltd. Olde Mill Investors Limited Partnership Orchard Park Apartments Limited Partnership Park Town Place Associates Limited Partnership Quail Run Associates, L.P. Ravenworth Associates Limited Partnership Rivercreek Apartments Limited Partnership Rivercrest Apartments, Limited Salem Arms of Augusta Limited Partnership Shaker Square, L.P. Shannon Manor Apartments, a Limited Partnership Sharon Woods, L.P. Snowden Village Associates, L.P. Sturbrook Investors, Ltd. Sycamore Creek Associates, L.P. Texas Residential Investors Limited Partnership Thurber Manor Associates, Limited Partnership Villa Nova, Limited Partnership Walker Springs, Limited Wingfield Investors Limited Partnership Winrock-Houston Limited Partnership Winthrop Apartment Investors Limited Partnership Winthrop Texas Investors Limited Partnership Woodmere Associates, L.P. Yorktown Towers Associates 3 The information in this 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 OCTOBER 28, 1998 PROSPECTUS APARTMENT INVESTMENT AND MANAGEMENT COMPANY $600,000,000 OF PREFERRED STOCK AND CLASS A COMMON STOCK AIMCO PROPERTIES, L.P. $200,000,000 OF PARTNERSHIP PREFERRED UNITS $200,000,000 OF PARTNERSHIP COMMON UNITS We may offer and issue these securities in connection with acquisitions of businesses, properties, securities or other assets. In addition, we may issue our Class A Common Stock upon conversion of shares our Preferred Stock, and we may also issue shares of our Preferred Stock and shares of our Class A Common Stock in exchange for our Partnership Preferred Units or our Partnership Common Units tendered for redemption. Apartment Investment and Management Company has elected to be taxed for Federal income tax purposes as a REIT. Our Class A Common Stock is listed on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sales price of our Class A Common Stock on the NYSE was $33 7/16 per share. There is no public market for our Partnership Preferred Units or our Partnership Common Units. However, after a one-year holding period, each of our Partnership Common Units may be redeemed in exchange for a share of our Class A Common Stock or, at our option, a cash amount equal to the market value of one share of our Class A Common Stock at the time of the redemption (subject to antidilution adjustments). SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, INCLUDING WITHOUT LIMITATION, THE FOLLOWING RISKS: - Our acquisition and development activities expose us to several negative factors, including difficulty in managing our rapid growth, the incurrence of unforeseen costs, possible failure to realize projected occupancy and rental rates. - Our organizational documents do not limit the amount of debt that we may incur, and our Board of Directors may change our leverage policy at any time. Our cash flow from operations might be insufficient to make required debt payments, and we might be unable to refinance our debt at all or on terms as favorable as the terms of our existing debt. In addition, we are subject to debt covenants that may restrict our ability to make distributions to investors. - Our real estate investment and management activities expose us to several potentially negative factors that are beyond our control such as local economic conditions, intense competition, potential environmental liabilities and change of laws, any of which could negatively affect our financial condition or results of operations. - We and certain of our officers and/or directors and unconsolidated subsidiaries have entered into, and may in the future into certain transactions that may result in conflicts of interest between the us and such officers and/or directors and unconsolidated subsidiaries. - If Apartment Investment and Management Company fails to qualify as a REIT, it (i) would not be allowed a deduction for dividends it pays, (ii) would be subject to federal income tax at corporate rates, (iii) might need to borrow funds or liquidate investments on unfavorable terms in order to pay the applicable tax and (iv) would no longer be required to make distributions to stockholders. - Our charter limits the number of shares of our stock that may be held by any one investor. Consequently, our stockholders are limited in their ability to effect a change of our control. - Investors in our partnership units must hold their units for one year, subject to certain exceptions. Thereafter investors may transfer such partnership units, subject to the satisfaction of certain conditions, including the general partner's right of first refusal. Holders of our partnership units do not have the ability to vote for or remove the general partner, and therefor they can not effect a change of control of AIMCO Properties, L.P. To the extent not otherwise described herein, the form in which the securities are to be issued, and the terms of such securities, including without limitation, their specific designation, or aggregate initial offering price, rate and times of payment of dividends, if any, redemption, conversion and exchange terms, if any, voting or other rights, if any, and other specific terms will be set forth in a Prospectus Supplement, together with the terms of offering of such securities. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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. The date of this Prospectus is , 1998. 4 TABLE OF CONTENTS
PAGE ---- THE COMPANY..................................... 1 RISK FACTORS.................................... 2 Risks of Acquisition and Development Activities.................................. 2 Risks Associated With Debt Financing.......... 3 Moody's Negative Outlook for AIMCO Ratings.... 3 Increases in Interests Rates May Increase our Interest Expense............................ 3 Risks of Interest Rate Hedging Arrangements... 3 Covenant Restrictions May Limit Our Ability to Make Payments to Our Investors.............. 4 We Depend on Distributions and Other Payments from Our Subsidiaries....................... 4 Real Estate Investment Risks.................. 4 Possible Environmental Liabilities............ 4 Laws Benefitting Disabled Persons May Result in Unanticipated Expenses................... 5 Risks Relating to Regulation of Affordable Housing..................................... 5 The Loss of Property Management Contracts Would Reduce Our Revenues................... 5 Dependence on Certain Executive Officers...... 5 Possible Conflicts of Interest; Transactions with Affiliates............................. 6 Tax Risks..................................... 6 Possible Adverse Consequences of Limits on Ownership of Shares......................... 7 Our Charter and Maryland Law May Limit the Ability of a Third Party to Acquire Control of the Company.............................. 7 Risks Relating to Year 2000 Issues............ 8 Risks Associated With an Investment in OP Units....................................... 8 SECURITIES COVERED BY THIS PROSPECTUS........... 14 RATIO OF EARNINGS TO FIXED CHARGES.............. 16 SELECTED HISTORICAL FINANCIAL DATA.............. 17 PER SHARE AND PER UNIT DATA..................... 20 Per Share Data................................ 20 Per Unit Data................................. 20 Stock Prices, Dividends and Distributions..... 21 BUSINESS OF THE COMPANY......................... 22 Operating and Financial Strategies............ 22 Growth Strategies............................. 23 Property Management Strategies................ 26 Accounting Policies and Definitions........... 28 Policies of the Company with Respect to Certain Other Activities.................... 29 Year 2000 Compliance.......................... 31 DESCRIPTION OF PREFERRED STOCK.................. 31 General....................................... 31 Dividends..................................... 32 Convertibility................................ 33 Redemption and Sinking Fund................... 33 Liquidation Rights............................ 33 Voting Rights................................. 33 Miscellaneous................................. 34 Other Rights.................................. 34 Transfer Agent and Registrar.................. 34 Class B Preferred Stock....................... 34 Class C Preferred Stock....................... 36
PAGE ---- Class D Preferred Stock....................... 37 Class E Preferred Stock....................... 38 Class G Preferred Stock....................... 39 Class H Preferred Stock....................... 40 DESCRIPTION OF COMMON STOCK..................... 41 General....................................... 41 Class A Common Stock.......................... 41 Restrictions on Transfer...................... 42 Class B Common Stock.......................... 43 Business Combinations......................... 44 Control Share Acquisitions.................... 45 DESCRIPTION OF OP UNITS......................... 45 General....................................... 45 Purpose and Business.......................... 46 Management by the AIMCO GP.................... 46 Management Liability and Indemnification...... 47 Compensation and Fees......................... 47 Fiduciary Responsibilities.................... 47 Class B Partnership Preferred Units........... 48 Class C Partnership Preferred Units........... 49 Class D Partnership Preferred Units........... 49 Class E Partnership Preferred Units........... 49 Class F Partnership Preferred Units........... 49 Class G Partnership Preferred Units........... 50 Class H Partnership Preferred Units........... 50 High Performance Units........................ 50 Distributions................................. 51 Allocations of Net Income and Net Loss........ 52 Withholding................................... 53 Return of Capital............................. 53 Redemption Rights............................. 53 Partnership Right to Call Common OP Units..... 53 Transfers and Withdrawals..................... 54 Issuance of Capital Stock by AIMCO............ 55 Dilution...................................... 55 Amendment of the AIMCO Operating Partnership Agreement................................... 55 Procedures for Actions and Consents of Partners.................................... 56 Records and Accounting; Fiscal Year........... 56 Reports....................................... 56 Tax Matters................................... 56 Dissolution and Winding Up.................... 57 COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO..................................... 58 COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK......................................... 65 FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS.................................. 67 General....................................... 67 Tax Aspects of AIMCO's Investments in Partnerships................................ 72 Taxation of Management Subsidiaries........... 73 Taxation of Taxable Domestic Stockholders..... 73 Taxation of Foreign Stockholders.............. 74 Information Reporting Requirements and Backup Withholding................................. 76 Taxation of Tax-Exempt Stockholders........... 76
i 5
PAGE ---- FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS................ 77 Partnership Status............................ 77 Taxation of OP Unitholders.................... 79 Allocations of AIMCO Operating Partnership Profits and Losses.......................... 79 Tax Basis of a Partnership Interest........... 79 Cash Distributions............................ 80 Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership.......... 80 Limitations on Deductibility of Losses........ 81 Section 754 Election.......................... 82 Depreciation.................................. 82 Sale, Redemption, or Exchange of OP Units..... 83
PAGE ---- Termination of the AIMCO Operating Partnership................................. 83 Alternative Minimum Tax....................... 84 Information Returns and Audit Procedures...... 84 Taxation of Foreign OP Unitholders............ 85 OTHER TAX CONSEQUENCES.......................... 85 Possible Legislative or Other Actions Affecting REITs............................. 85 State, Local and Foreign Taxes................ 85 WHERE YOU CAN FIND MORE INFORMATION............. 85 LEGAL MATTERS................................... 86 EXPERTS......................................... 87 APPENDIX A: GLOSSARY............................ A-1 APPENDIX B: THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P........................................... B-1
ii 6 THE COMPANY Apartment Investment and Management Company ("AIMCO"), a Maryland corporation formed on January 10, 1994, is a self-administered and self-managed REIT engaged in the ownership, acquisition, development, expansion and management of multi-family apartment properties. As of October 1, 1998, we owned or managed 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, we were the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. We conduct substantially all of our operations through AIMCO Properties, L.P., a Delaware limited partnership (the "AIMCO Operating Partnership"). Our wholly owned subsidiary, AIMCO-GP, Inc. (the "AIMCO GP") is the sole general partner of the AIMCO Operating Partnership. Through the AIMCO GP and another of our wholly owned subsidiaries, AIMCO-LP, Inc. (the "Special Limited Partner"), as of October 1, 1998, we owned approximately an 89% interest in the AIMCO Operating Partnership. We manage apartment properties for third parties and affiliates through unconsolidated subsidiaries that we refer to as the "management companies." Generally, when we refer to "we," "us" or the "Company" in this prospectus, we are referring to AIMCO, the AIMCO Operating Partnership, the management companies and their respective subsidiaries. Our principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and our telephone number is (303) 757-8101. 1 7 RISK FACTORS Before you invest in our securities, you should be aware that there are various risks, including those described below. You should consider carefully these risk factors together with all of the other information included in this prospectus before you decide to purchase our securities. Some of the information in this prospectus may contain forward-looking statements. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of 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 this prospectus. The risk factors noted in this section and other factors noted throughout this prospectus, including certain risks and uncertainties, could cause our actual results to differ materially from those contained in any forward-looking statement. RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES Generally. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to identify or complete transactions in the future. Although we seek to acquire, develop and expand properties only when such activities are accretive on a per share basis, such transactions may fail to perform in accordance with our expectations. When we develop or expand properties, we are subject to the risks that: - costs may exceed original estimates; - projected occupancy and rental rates at the property may not be realized; - financing may not be available on favorable terms; - construction and lease-up may not be completed on schedule; and - we may experience difficulty or delays in obtaining necessary zoning, land-use, building, occupancy, and other governmental permits and authorizations. We May Have Difficulty Managing Our Rapid Growth. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned or managed properties from 132 apartment properties with 29,343 units to 2,303 apartment properties with 396,090 units as of October 1, 1998. These acquisitions have included purchases of properties and interests in entities that own or manage properties, as well as corporate mergers. Our recent merger with Insignia Financial Group, Inc. ("Insignia") is our largest acquisition so far. Our ability to successfully integrate acquired businesses and properties depends on our ability to: - attract and retain qualified personnel; - integrate the personnel and operations of the acquired businesses; - maintain uniform standards, controls, procedures and policies; and - maintain adequate accounting and information systems. We can provide no assurance that we will be able to accomplish these goals and successfully integrate any acquired businesses or properties. If we fail to successfully integrate such businesses, our results of operations could be adversely affected. Litigation Associated with Partnership Acquisitions. We have engaged in, and intend to continue to engage in, the selective acquisition of interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the 2 8 relevant partnership agreement. Although we intend to comply with our fiduciary obligations and relevant partnership agreements, we may incur additional costs in connection with the defense or settlement of such litigation. In some cases, such litigation may adversely affect our desire to proceed with, or our ability to complete, a particular transaction. Such litigation could also have a material adverse effect on our results of operations. RISKS ASSOCIATED WITH DEBT FINANCING Our strategy is generally to incur debt to increase the return on our equity while maintaining acceptable interest coverage ratios. We seek to maintain a ratio of free cash flow to combined interest expense and preferred stock dividends of between 2:1 and 3:1. However, our Board of Directors could change this strategy at any time and increase our leverage. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. We are also subject to the risk that our 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 we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. As of June 30, 1998, 94% of the properties that we own or control and 43% of our assets were encumbered by debt. On a pro forma basis, giving effect to the recent Insignia merger, as of June 30, 1998, we had $1,491 million of indebtedness outstanding on a consolidated basis, of which $1,469 million was secured. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poors and Duff & Phelps confirmed their existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow and our ability to service our indebtedness and make distributions. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. These agreements involve the following risks: - interest rate movements during the term of the agreement may result in a gain or loss to us; - we may be exposed to losses if the hedge is not indexed to the same rate as the debt anticipated to be incurred; and - if the counterparty to the agreement fails to pay, we may incur a loss. 3 9 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. Our primary credit facility provides that we may make distributions to our investors during any 12-month period in an aggregate amount that does not exceed the greater of 80% of our funds from operations for such period or such amount as may be necessary to maintain our REIT status. This credit facility prohibits all distributions if certain financial ratios and tests are not satisfied. The preferred stock that we issued in the Insignia merger prohibits the payment of dividends on our common stock if we fail to make the payments required by the preferred stock. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES All of our properties are owned, and all of our operations are conducted, by the AIMCO Operating Partnership and our other subsidiaries. As a result, we depend on distributions and other payments from subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of our subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims would still be subordinated to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to us. REAL ESTATE INVESTMENT RISKS Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control. Such events or conditions could include: - the general economic climate; - competition from other apartment communities and alternative housing; - local conditions, such as an increase in unemployment or an oversupply of apartments, that might adversely affect apartment occupancy or rental rates; - increases in operating costs (including real estate taxes) due to inflation and other factors, which may not necessarily be offset by increased rents; - changes in governmental regulations and the related costs of compliance; - changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; - changes in interest rate levels and the availability of financing; and - the relative illiquidity of real estate investments. POSSIBLE ENVIRONMENTAL LIABILITIES Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes on a property could result in personal injury or 4 10 similar claims by private plaintiffs. Various laws also impose, on persons who arrange for the disposal or treatment of hazardous or toxic substances, liability for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional Federal, state and local laws exist which also may require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. For example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the ADA or the FHAA 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 we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA and FHAA. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING As of October 1, 1998, we owned or controlled 2 properties, held an equity interest in 783 properties and managed for third parties and affiliates 322 properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by the United States Department of Housing and Urban Development ("HUD") or state housing finance agencies, typically provide mortgage insurance, favorable financing terms or rental assistance payments to the property owners. As a condition to 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. We usually need to obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted or HUD-insured property. We can make no assurance that we will always receive such approval. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES We manage some properties owned by third parties. For the year ended December 31, 1997, we derived approximately 2% of our gross revenue from management of properties owned by third parties. During the same period, Insignia, which merged with us on October 1, 1998, derived approximately 15% of its gross revenue from management of properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based declines. In general, management contracts may be terminated or otherwise lost as a result of: - a disposition of the property by the owner in the ordinary course or as a result of financial distress of the property owner; - the property owner's determination that our management of the property is unsatisfactory; - willful misconduct, gross negligence or other conduct that constitutes grounds for termination; or - with respect to certain affordable properties, termination of such contracts by HUD or state housing finance agencies, generally at their discretion. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS Although we have entered into employment agreements with our Chairman and Chief Executive Officer, Terry Considine, our President, Peter K. Kompaniez and our Executive Vice President, Steven D. Ira, the loss of any of their services could have an adverse effect on our operations. 5 11 POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors and entities in which they own interests. For example, in order to satisfy certain REIT requirements, Messrs. Considine and Kompaniez directly or indirectly control the management companies which manage properties for third parties and affiliates. Although we own a 95% non-voting interest in these management companies, we have no control over them or their operations. As a result, the management companies could implement business decisions or policies that are not in our best interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority of our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. TAX RISKS Adverse Consequences of Failure to Qualify as a REIT. Although we believe that we operate in a manner that enables us to meet the requirements for qualification as a REIT for Federal income tax purposes, we do not plan to request a ruling from the IRS that we qualify as a REIT. We have, however, received an opinion from the law firm of Skadden, Arps, Slate, Meagher & Flom LLP to the effect that, beginning with our initial taxable year ended December 31, 1994, we were organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code and that our proposed method of operation, and our actual method of operation since our formation through the date of such opinion, will enable us to meet the requirements for qualification and taxation as a REIT. You should be aware that opinions of counsel are not binding on the IRS or any court. Our opinion of counsel is based upon certain representations and covenants made by us regarding the past, present and future conduct of our business operations. Furthermore, our opinion of counsel is conditioned on, and our continued qualification as a REIT will depend on, our ability to meet, through actual annual operating results, the various REIT qualification tests. Such requirements are discussed in more detail under the heading "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to shareholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. We also could be subject to the Federal alternative minimum tax. Unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General -- Failure to Qualify." Also, if we fail to qualify as a REIT, (i) we would be obligated to repurchase 750,000 shares of our preferred stock at a price of $105 per share, plus accrued and unpaid dividends to the date of repurchase, and (ii) we would be in default under our primary credit facilities and certain other loan documents. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify." If we acquire a corporation that is not a REIT (such as Insignia), we will qualify as a REIT only if we distribute all of the acquired corporation's "earnings and profits" by the end of the year in which the acquisition occurs. The determination of earnings and profits, however, is difficult and requires the resolution of technical tax issues. In addition, the IRS can consider all taxable years as open for review for purposes of determining the amount of its earnings and profits. Our failure to distribute an amount equal to Insignia's earnings and profits on or before December 31, 1998, would result in our failure to qualify as a REIT. Effect of Distribution Requirements. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution Requirements." 6 12 Possible Legislative or Other Actions Affecting REITs. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the tax law could adversely affect our investors. It cannot be predicted whether, when, in what forms, or with what effective dates, the tax laws applicable to us or our investors will be changed. Other Tax Liabilities. Even if we qualify as a REIT, we and our subsidiaries may be subject to certain Federal, state and local taxes on our income and property that could reduce operating cash flow. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES Our Charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). The Charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. This could happen if a share transaction results in fewer than 100 persons owning all of our shares or in five or fewer persons, applying certain broad attribution rules of the Internal Revenue Code, owning 50% or more of our shares. If you or anyone else 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; - we will not reflect the transaction on our books; - we may institute legal action to enjoin the transaction; - we may demand repayment of any dividends received by the affected person on those shares; - we may redeem the shares at their then current market price; - 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 us. We 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, the affected person will receive the lesser of the price he paid for the shares or the then current market price. An individual who acquires shares that violate the above rules bears the risk that: - he may lose control over the power to dispose of the shares; - he may not recognize profit from the sale of such shares if the market price of the shares increases; - he may be required to recognize a loss from the sale of such shares if the market price decreases; and - he may be required to repay any distributions received as a result of his ownership of such shares. OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE CONTROL OF THE COMPANY Ownership Limit. The 8.7% ownership limit discussed above may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors. Preferred Stock. Our Charter authorizes our Board of Directors to issue up to 510,750,000 shares of capital stock. As of October 1, 1998, 486,027,500 shares were classified as Class A Common Stock, 262,500 shares were classified as Class B Common Stock and 24,460,000 were classified as preferred stock. Under the Charter, our Board of Directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as the Board of Directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders' best interests. 7 13 Maryland Business Statutes. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our shareholders' best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our 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 only with the approval of shareholders representing 80% of all votes entitled to be cast and 66% of the votes entitled to be cast, excluding the interested shareholder. Maryland law also provides that a person who acquires shares of our stock that represent 20% 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. RISKS RELATING TO YEAR 2000 ISSUES We use and depend on numerous accounting and reporting software packages and computer hardware to conduct our business. We have appointed a team of internal staff to determine whether these software packages and computer hardware will function properly in the year 2000. Further, we have just begun to evaluate the Insignia software packages and computer hardware. Some of the properties that we own or control possess operational systems (e.g. elevators, fire alarm and extinguishment systems and security systems). We are currently working to identify all operational systems at these properties that may need to be modified or replaced in order to properly function in the year 2000. We have not yet determined the estimated cost to modify or replace these non-compliant operational systems. RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS We refer to interests in the AIMCO Operating Partnership as "OP Units." The Partnership Common Units are referred to as "Common OP Units" and the Partnership Preferred Units are referred to as "Preferred OP Units." The agreement of limited partnership of the AIMCO Operating Partnership is referred to as the "AIMCO Operating Partnership Agreement." Restrictions on Transferability of OP Units. There is no public market for our OP Units. In addition, our partnership agreement restricts the transferability of OP Units. Until the expiration of a one year holding period, subject to certain exceptions, investors may not transfer OP Units without the consent of the general partner of the AIMCO Operating Partnership. Thereafter investors may transfer such OP Units subject to the satisfaction of certain conditions, including the general partner's right of first refusal. See "Description of OP Units -- Transfers and Withdrawals." We have no plans to list our OP Units on a securities exchange. It is unlikely that any person will make a market in our OP Units, or that an active market for our OP Units will develop. If a market for our OP Units develops and our 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 federal income tax purposes. See "-- Tax Treatment is Dependent on Partnership Status; Publicly Traded Partnership Risks." Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership Performance. Although we make quarterly distributions on our OP Units, there can be no assurance regarding the amounts of available cash that the AIMCO Operating Partnership will generate or the portion that the 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 our debt, the cost of acquisitions (including related debt service payments), our 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 our control. Cash distributions are dependent primarily on cash flow, including from reserves, and not on profitability, which is affected by non-cash items. Therefore, cash distributions may be made during periods when the we record losses and may not be made during periods when we record profits. We make quarterly distributions to holders of Common OP Units (on a per unit basis) 8 14 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. Our partnership agreement gives our general partner discretion in establishing reserves for the proper conduct of the partnership's business that will affect the amount of available cash. We are required to make reserves for the future payment of principal and interest under our credit facilities and other indebtedness. In addition, our credit facilities limit our ability to distribute cash to holders of our OP Units. As a result of these and other factors, there can be no assurance regarding our actual levels of cash distributions on our OP Units, and our ability to distribute cash may be limited during the existence of any events of default under any of our debt instruments. The AIMCO GP Manages and Operates the AIMCO Operating Partnership; OP Unitholders Have Limited Voting Rights. The AIMCO GP manages and operates the AIMCO Operating Partnership. Unlike the holders of common stock in a corporation, OP Unitholders have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. OP Unitholders have no right to elect the AIMCO GP on an annual or other continuing basis, and the AIMCO GP may not be removed by OP Unitholders. As a result, OP Unitholders 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. We May Issue Additional Partnership Interests, Diluting OP Unitholders' Interests. We may issue an unlimited number of additional OP Units or other limited partner interests of the AIMCO Operating Partnership for such consideration and on such terms as may be established by the AIMCO GP in its sole discretion, in most cases, without the approval of OP Unitholders. The effect of any such issuance may be to dilute the interests of OP Unitholders in distributions by the AIMCO Operating Partnership. OP Unitholders May Not Have Limited Liability in Certain Circumstances. 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 OP Unitholders 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 an OP Unitholder could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the AIMCO GP. Conflicts of Interest and Fiduciary Responsibility. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the AIMCO GP and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the AIMCO GP. At the same time, the AIMCO GP, as 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 AIMCO GP, as general partner, to the AIMCO Operating Partnership and its partners, therefore, may come into conflict with the duties of the directors and officers of the AIMCO GP to its sole stockholder, AIMCO. Such conflicts of interest might arise in the following situations, among others: - Decisions of the AIMCO GP 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 partnership agreement, the AIMCO Operating Partnership will reimburse the AIMCO GP and its affiliates for costs incurred in managing and operating the AIMCO Operating Partnership, including compensation of officers and employees. - Whenever possible, the AIMCO GP 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 AIMCO GP or its assets. 9 15 - Any agreements between the AIMCO Operating Partnership and the AIMCO GP and its affiliates will not grant to the OP Unitholders, separate and apart from the AIMCO Operating Partnership, the right to enforce the obligations of the AIMCO GP and such affiliates in favor of the AIMCO Operating Partnership. Therefore, the AIMCO GP, in its capacity as the general partner of the AIMCO Operating Partnership, will be primarily responsible for enforcing such obligations. - Under the terms of the AIMCO Operating Partnership Agreement, the AIMCO GP is not restricted from causing the AIMCO Operating Partnership to pay the AIMCO GP 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 AIMCO Operating Partnership Agreement nor any of the other agreements, contracts and arrangements between the AIMCO Operating Partnership, on the one hand, and the AIMCO GP and its affiliates, on the other, are or will be the result of arms-length negotiations. 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 AIMCO GP 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 the AIMCO GP, on such terms as the AIMCO GP, in its sole and absolute discretion, believes are advisable. The latitude given in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving conflicts of interest may significantly limit the ability of an OP Unitholder to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP 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 AIMCO Operating Partnership Agreement expressly limits the liability of the AIMCO GP by providing that the AIMCO GP, 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 AIMCO GP or such director or officer acted in good faith. In addition, the AIMCO Operating Partnership is required to indemnify the AIMCO GP, 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 AIMCO GP 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 AIMCO Operating 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 AIMCO GP has not obtained an opinion of counsel covering the provisions set forth in the AIMCO Operating Partnership Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP that would be in effect under common law were it not for the AIMCO Operating Partnership Agreement. Certain Tax Risks Associated with an Investment in the OP Units. For a general discussion of certain federal income tax consequences resulting from the acquisition, holding, exchanging, and otherwise disposing of OP Units, see "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." Tax Treatment is Dependent on Partnership Status; Publicly Traded Partnership Risks. The availability to an OP Unitholder of the federal income tax benefits of an investment in the AIMCO Operating Partnership depends on the classification of the AIMCO Operating Partnership as a partnership for federal income tax purposes. In the opinion of our legal counsel, which opinion is based upon certain assumptions and representations by the AIMCO Operating Partnership and on opinions of local counsel, with respect to matters of local law, the AIMCO Operating Partnership will be classified as a partnership for federal income 10 16 tax purposes. The opinion is expressed as of its date and our counsel has no obligation to advise OP Unitholders of any subsequent change in the matters stated, represented or assumed or any subsequent change in the applicable law. No advance ruling has been or will be sought from the IRS as to the classification of the AIMCO Operating Partnership as a partnership. An opinion of counsel is not binding on the IRS, and 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 the OP Units develops and the 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. We believe and intend to take the position that the AIMCO Operating Partnership should not be classified as a publicly traded partnership because (i) our OP Units are not traded on an established securities market and (ii) our 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 the Treasury regulations promulgated by the U.S. Treasury Department under the Internal Revenue Code (the "Treasury Regulations") 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 any of these safe harbors in its previous tax years. 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 impossible to predict whether the AIMCO Operating Partnership will satisfy a safe harbor in future tax years. 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 characterized 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. We believe that more than 90% of the gross income of the AIMCO Operating Partnership consists of qualifying income and we expect 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 OP Unitholder would be subject to special rules under section 469 of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Limitations on Deductibility of Losses; "Passive Activity Loss" Limitation." 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 characterized 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 OP Unitholders would be subject to tax in the same manner as stockholders of a corporation. Thus, the AIMCO Operating Partnership would be subject to federal tax (and possibly state and local taxes) on its net income, determined without reduction for any distributions made to the OP Unitholders, at regular federal corporate income tax rates, thereby reducing the amount of any cash available for distribution to the OP Unitholders, which reduction could also materially and adversely impact the liquidity and value of the OP Units. In addition, the AIMCO Operating Partnership's items of income, gain, loss, deduction and credit would not be passed through to the OP Unitholders and the OP Unitholders would not be subject to tax on the income earned by the AIMCO Operating Partnership. 11 17 Distributions received by an OP Unitholder from the AIMCO Operating Partnership, however, would be treated as dividend income for federal income tax purposes, subject to tax as ordinary income 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 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 federal income tax purposes which would have a material adverse impact on AIMCO. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Partnership Status." 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 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 federal income tax purposes. Consequences of Exchanging Property for OP Units. In general, no gain or loss will be recognized for federal income tax purposes by a person contributing property to the AIMCO Operating Partnership (the "Contributing Partner") in exchange for OP Units, and the Contributing Partner will take a tax basis in the OP Unit received equal to his adjusted tax basis in the contributed property. Notwithstanding this general rule of nonrecognition, a Contributing Partner may recognize a gain where the property transferred is subject to liabilities, or the AIMCO Operating Partnership assumes liabilities in connection with the transfer of property, and the amount of such liabilities exceeds the amount of the AIMCO Operating Partnership liabilities allocated to such person as determined immediately after the transfer. Such excess is treated as a deemed distribution of cash to the Contributing Partner from the AIMCO Operating Partnership which, in turn, is treated as a nontaxable return of capital to the extent of the Contributing Partner's adjusted tax basis in his OP Unit and thereafter as gain from the sale of such partnership interest. If the Contributing Partner transfers property to the AIMCO Operating Partnership and the adjusted tax basis of the property differs from its fair market value, then AIMCO Operating Partnership tax items must be allocated, for federal income tax purposes, in a manner such that the Contributing Partner is charged with the unrealized gain, or benefits from the unrealized loss, associated with the property at the time of the contribution. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership." There are a variety of transactions that the AIMCO Operating Partnership may in its sole discretion undertake following such contribution with respect to the contributed property or the debt securing such property which could cause the Contributing Partner to recognize taxable gain, even though little or no cash is distributable to him as a result thereof. Such transactions include but are not limited to (i) the sale of a particular property, which could result in an allocation of gain only to those OP Unitholders who received OP Units for such property (even if cash attributable to sale proceeds were distributed proportionately to all OP Unitholders); and (ii) a reduction in the nonrecourse debt allocable to property (either because such debt becomes a recourse liability or is paid off with cash flow, new equity, or proceeds of debt secured by other property of the AIMCO Operating Partnership), which would result in a deemed distribution of money to the OP Unitholders who received OP Units for such property as well as to the other OP Unitholders. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Cash Distributions." The AIMCO Operating Partnership Agreement grants the AIMCO GP broad authority to undertake such transactions and does not grant the OP Unitholders affected by these actions any rights to prevent the AIMCO GP from taking such actions. Even if the AIMCO GP does not intend to sell or otherwise dispose of contributed property or to reduce the debt, if any, securing such property within any specified time period after the Contributing Partner transfers such property to the AIMCO Operating Partnership, it is possible that future economic, market, legal, tax or other considerations may cause the AIMCO Operating Partnership to dispose of the contributed property or to reduce its debt. In this regard, the AIMCO Operating Partnership Agreement provides that the AIMCO GP, while acting in its capacity as general partner of the AIMCO Operating Partnership, may, but is not required 12 18 to, take into account the tax consequences to the OP Unitholders of its actions in such capacity. The AIMCO GP intends to make decisions in its capacity as general partner of the AIMCO Operating Partnership so as to maximize the profitability of the AIMCO Operating Partnership as a whole, independent of the tax effects on individual OP Unitholders. Tax Liability Exceeding Cash Distribution. An OP Unitholder will be required to pay federal income tax and, in certain cases, state and local income taxes, on his allocable share of the AIMCO Operating Partnership's income, even if he receives no cash distributions from the AIMCO Operating Partnership. No assurance can be given that an OP Unitholder will receive cash distributions equal to his allocable share of taxable income from the AIMCO Operating Partnership or even the tax liability to him resulting from that income. Further, upon the sale of his OP Units, an OP Unitholder may incur a tax liability in excess of the amount of cash received. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Taxation of OP Unitholders of AIMCO Operating Partnership," and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Sale, Redemption, or Exchange of OP Units." Deductibility of Losses. An OP Unitholder's ability to use his allocable share of losses, if any, from the AIMCO Operating Partnership at the end of the taxable year in which the loss is incurred may be limited by certain provisions of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Limitations on Deductibility of Losses." Potential Audits. The AIMCO Operating Partnership's tax return may be audited, and any such audit could result in an audit of an 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 an OP Unitholder's tax return and may lead to audits of an OP Unitholder's tax return and adjustments of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would bear the cost of any expenses incurred in connection with an examination of such OP Unitholder's tax return. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Information Returns and Audit Procedures." State, Local and Other Tax Considerations. In addition to federal income taxes, the AIMCO Operating Partnership and its OP Unitholders may be subject to state, local and foreign taxation in various jurisdictions in which the AIMCO Operating Partnership does business, owns property or resides. See "Other Tax Consequences -- State, Local and Foreign Taxes." Tax Gain or Loss on Disposition of OP Units. An OP Unitholder who sells OP Units will recognize gain or loss equal to the difference between the amount realized (including his share of AIMCO Operating Partnership nonrecourse liabilities) and his adjusted tax basis in such OP Units. Thus, prior AIMCO Operating Partnership distributions in excess of cumulative net taxable income in respect of an OP Unit which decreased an OP Unitholder's tax basis in such OP Unit will, in effect, become taxable income if the OP Unit is sold at a price greater than the OP Unitholder's tax basis in such OP Units, even if the price is less than his original cost. A portion of the amount realized (whether or not representing gain) may be ordinary income. 13 19 SECURITIES COVERED BY THIS PROSPECTUS The securities covered by this Prospectus (the "Securities") may be offered and issued from time to time by AIMCO or the AIMCO Operating Partnership in connection with acquisitions of businesses, properties, securities or other assets. In addition, AIMCO may issue (i) shares of its Class A Common Stock, par value $0.01 per share ("Class A Common Stock") covered hereby upon conversion of shares its Preferred Stock, par value $0.01 per share ("Preferred Stock"), (ii) shares of its Preferred Stock covered hereby and shares of its Class A Common Stock covered hereby, in each case in exchange for Partnership Preferred Units of the AIMCO Operating Partnership ("Preferred OP Units") tendered for redemption pursuant to the AIMCO Operating Partnership Agreement and (iii) shares of its Class A Common Stock covered hereby in exchange for Partnership Common Units of the AIMCO Operating Partnership ("Common OP Units" and together with the Preferred OP Units, the "OP Units") tendered for redemption pursuant to the AIMCO Operating Partnership Agreement. It is expected that the terms of acquisitions involving the issuance of the Securities will be determined by direct negotiations with owners or controlling persons of the business, properties, securities or other assets to be acquired or through exchange offers. It is expected that any shares of Class A Common Stock or Common OP Units issued will be valued at prices based on or related to market prices for the Class A Common Stock at or near the time the terms of such acquisition are established or at or near the time such Securities are delivered, or based on average market prices for periods ending at or near such times. No underwriting discounts or commissions will be paid, although brokers' or finders' fees may be paid from time to time with respect to specific acquisitions, and AIMCO or the AIMCO Operating Partnership may issue the Securities in full or partial payment of such fees. Any person receiving such fees may be deemed to be an "underwriter," within the meaning of the Securities Act. This Prospectus has also been prepared for use by the persons who may receive from AIMCO or the AIMCO Operating Partnership Securities covered by the Registration Statement in acquisitions and who may be entitled to offer such Securities under circumstances requiring the use of a Prospectus (such persons being referred to under this caption as "Securityholders"); provided, however, that no Securityholder will be authorized to use this Prospectus for any offer of such Security without first obtaining the consent of AIMCO and the AIMCO Operating Partnership. AIMCO and the AIMCO Operating Partnership may consent to the use of this Prospectus for a limited period of time by the Securityholders and subject to limitations and conditions which may be varied by agreement between AIMCO and the AIMCO Operating Partnership and the Securityholders. Resales of such Securities may be made on the NYSE or such other exchange on which the Securities may be listed, in the over-the-counter market, in private transactions or pursuant to underwriting agreements. Agreements with Securityholders permitting use of this Prospectus may provide that any such offering be effected in an orderly manner through securities dealers, acting as broker or dealer, selected by AIMCO and the AIMCO Operating Partnership; that Securityholders enter into custody agreements with one or more banks with respect to such shares; and that sales be made only by one or more of the methods described in this Prospectus, as appropriately supplemented or amended when required. The Securityholders may be deemed to be underwriters within the meaning of the Securities Act. When resales are to be made through a broker or dealer selected by AIMCO and the AIMCO Operating Partnership, it is anticipated that a member firm of the NYSE may be engaged to act as the Securityholders' agent in the sale of shares by such Securityholders. The member firm will be entitled to commissions (including negotiated commissions to the extent permissible). Sales of shares by the member firm may be made on the NYSE or other exchange from time to time at prices related to prices then prevailing. Any such sales may be by block trade. Any such member firm may be deemed to be an underwriter within the meaning of the Securities Act and any commissions earned by such member firm may be deemed to be underwriting discounts and commissions under such act. Upon AIMCO and the AIMCO Operating Partnership being notified by a Securityholder that any block trade has taken place, a supplementary prospectus, if required, will be filed pursuant to Rule 424 under the Securities Act, disclosing the name of the member firm, the number of shares involved, the price at which 14 20 such shares were sold by such Securityholder, and the commissions to be paid by such Securityholder to such member firm. This Prospectus may be supplemented or amended from time to time to reflect its use for resales by persons who received Securities for whom AIMCO and the AIMCO Operating Partnership have consented to the use of this Prospectus in connection with resales of such Securities. In addition to the Securities offered hereby, AIMCO and the AIMCO Operating Partnership may from time to time issue additional Securities through public offerings or private placements. AIMCO and the AIMCO Operating Partnership may make such future issuances of Securities in connection with its acquisition of other businesses, properties, securities or other assets in business combination transactions or for other purposes. 15 21 RATIO OF EARNINGS TO FIXED CHARGES
COMPANY COMPANY THE COMPANY PREDECESSORS(1) PRO FORMA(6) ------------------------------------------------ ------------------- ------------------- FOR THE SIX FOR THE FOR THE FOR THE MONTHS FOR THE YEARS PERIOD PERIOD FOR THE SIX FOR THE ENDED ENDED JAN. 10, JAN. 1, YEAR MONTHS YEAR JUNE 30, DECEMBER 31, 1994 TO 1994 TO ENDED ENDED ENDED ------------- --------------------- DEC. 31, JULY 28, DEC. 31, JUNE 30, DEC. 31, 1998 1997 1997 1996 1995 1994 1994(3) 1993 1998 1997 ----- ----- ----- ----- ----- -------- -------- -------- -------- -------- Ratio of earning to fixed charges(2)....................... 2.0:1 1.6:1 2.3:1 1.6:1 2.1:1 5.8:1 N/A 1.2:1 1.6:1 2.0:1 Ratio of earnings to combined fixed charges and preferred stock dividends(4)(5).................. 1.6:1 1.6:1 2.2:1 1.6:1 1.5:1 2.0:1 N/A 1.2:1 1.3:1 1.5:1
- --------------- (1) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of Class A Common Stock. On such date, AIMCO and Property Asset Management, L.L.C., and its affiliated companies and PDI Realty Enterprises, Inc. (collectively, the "Company Predecessors") engaged in a business combination and consummated a series of related transactions which enabled the Company to continue and to expand the property management and related businesses of the Company Predecessors. (2) The ratio of earnings to fixed charges for the Company was computed by dividing earnings by fixed charges. For this purpose, "earnings" consists of income before minority interests (which includes equity in earnings of unconsolidated subsidiaries and partnerships only to the extent of dividends and distributions received) plus fixed charges (other than any interest which has been capitalized); and "fixed charges" consists of interest expense (including amortization of loan costs) and interest which has been capitalized. The ratio of earnings to fixed charges for the Company Predecessors was computed by dividing earnings by fixed charges. For this purpose, "earnings" consists of income (loss) before extraordinary items and income taxes plus fixed charges and "fixed charges" consists of interest expense (including amortization of loan costs). (3) The earnings of the Company Predecessors for the period from January 1, 1994 to July 28, 1994 were inadequate to cover fixed charges by $1,463,000. (4) The ratio of earnings to combined fixed charges and preferred stock dividends for the Company was computed by dividing earnings by the total of fixed charges and preferred stock dividends. For this purpose, "earnings" consists of income before minority interests (which includes equity in earnings of unconsolidated subsidiaries and partnerships only to the extent of dividends and distributions received) plus fixed charges (other than any interest which has been capitalized); "fixed charges" consists of interest expense (including amortization of loan costs) and interest which has been capitalized; and "preferred stock dividends" consists of the amount of pre-tax earnings that would be required to cover preferred stock dividend requirements. (5) The Company Predecessors did not have any shares of preferred stock outstanding during the period from January 1, 1993 through July 28, 1994. (6) Gives pro forma effect, as of the beginning of the period indicated, to AIMCO's May 8, 1998 merger with Ambassador Apartments, Inc., AIMCO's October 1, 1998 merger with Insignia Financial Group, Inc. and certain other transactions completed by AIMCO subsequent to December 31, 1997. 16 22 SELECTED HISTORICAL FINANCIAL DATA The following table sets forth selected historical financial and operating information for the Company. The Selected Historical Financial Data for the six months ended June 30, 1998 and 1997 is based on unaudited financial statements of AIMCO as included in AIMCO's Quarterly Report on Form 10-Q for the six months ended June 30, 1998, incorporated by reference herein. Results for the quarter ended June 30, 1998 are not necessarily indicative of the results to be expected for a full year. The selected historical financial information for the years ended December 31, 1997, 1996 and 1995 is based on the audited financial statements of AIMCO incorporated by reference herein. The selected historical financial information for the period January 10, 1994 (the date of AIMCO's inception) through December 31, 1994 for AIMCO and for the period from January 1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the Company's Predecessors is based on the audited financial statements of AIMCO and the Company's Predecessors, respectively. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in AIMCO's Annual Report on Form 10-K/A for the year ended December 31, 1997 and in AIMCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and the historical financial statements of AIMCO and notes thereto incorporated by reference in this Prospectus.
THE COMPANY'S THE COMPANY PREDECESSORS(a) -------------------------------------------------------------------------- ------------------------ FOR THE FOR THE PERIOD PERIOD FOR THE FOR THE JAN. 10, JAN. 1, FOR THE SIX MONTHS ENDED YEAR ENDED 1994 1994 YEAR JUNE 30, DECEMBER 31, THROUGH THROUGH ENDED ----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31, 1998 1997 1997 1996 1995 1994 1994(b) 1993 ---------- ---------- ---------- -------- -------- ------------- ------------- -------- (RESTATED)(c) (RESTATED)(c) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other property revenues................ $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056 Property operating expenses................ (59,643) (31,106) (76,168) (38,400) (30,150) (10,330) (2,263) (3,200) Owned property management expenses................ (4,713) (2,734) (6,620) (2,746) (2,276) (711) -- -- Depreciation.............. (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) (1,151) (1,702) ---------- ---------- ---------- -------- -------- -------- ------- -------- Income from Rental Property Operations..... 62,619 30,779 72,477 39,814 27,483 9,126 2,391 3,154 ---------- ---------- ---------- -------- -------- -------- ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income.................. 9,562 5,605 13,937 8,367 8,132 3,217 6,533 8,069 Management and other expenses................ (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) (5,823) (6,414) Corporate overhead allocation.............. (196) (294) (588) (590) (581) -- -- -- Amortization of Goodwill................ -- -- (948) (500) (428) -- -- -- Owner and seller bonuses................. -- -- -- -- -- -- (204) (468) Depreciation and amortization............ (3) (161) (453) (218) (168) (150) (146) (204) ---------- ---------- ---------- -------- -------- -------- ------- -------- Income from service business................ 3,893 2,507 2,038 1,707 2,002 1,020 360 983 Minority interests in service company business................ (1) (2) (10) 10 (29) (14) -- -- ---------- ---------- ---------- -------- -------- -------- ------- -------- Company's shares of income from service company business................ 3,892 2,505 2,028 1,717 1,973 1,006 360 983 ---------- ---------- ---------- -------- -------- -------- ------- -------- General and administrative expenses................ (4,103) (784) (5,396) (1,512) (1,804) (977) -- -- Interest income........... 11,350 1,341 8,676 523 658 123 -- -- Interest expense.......... (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) (4,214) (3,510) Minority interest in other partnerships............ (516) (565) 1,008 (111) -- -- -- -- Equity in earnings of other partnerships(d)... (4,681) (379) (1,798) -- -- -- -- -- Equity in earnings of Unconsolidated Subsidiaries(e)......... 5,609 (86) 4,636 -- -- -- -- -- Amortization of Goodwill................ (3,394) (474) -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- -------- ------- -------- Income (loss) before gain on disposition of property, extraordinary item, income taxes and minority interest in AIMCO Operating Partnership............. 35,998 11,733 30,246 15,629 14,988 7,702 (1,463) 627 ---------- ---------- ---------- -------- -------- -------- ------- -------- Gain on disposition of property................ 2,526 -- 2,720 44 -- -- -- -- Extraordinary (loss) -- forgiveness of debt..... -- (269) (269) -- -- -- -- -- Provisions for income taxes................... -- -- -- -- -- -- (36) (336) ---------- ---------- ---------- -------- -------- -------- ------- -------- Income (loss) before minority interest in AIMCO Operating Partnership............. 38,524 11,464 32,697 15,673 14,988 7,702 (1,499) 291 Minority interest in AIMCO Operating Partnership... (3,262) (1,616) (4,064) (2,689) (1,613) (599) -- -- ---------- ---------- ---------- -------- -------- -------- ------- -------- Net income (loss)......... $ 35,262 $ 9,848 $ 28,633 $ 12,984 $ 13,375 $ 7,143 $(1,499) $ 291 ========== ========== ========== ======== ======== ======== ======= ========
17 23
THE COMPANY'S THE COMPANY PREDECESSORS(a) -------------------------------------------------------------------------- ------------------------ FOR THE FOR THE PERIOD PERIOD FOR THE FOR THE JAN. 10, JAN. 1, FOR THE SIX MONTHS ENDED YEAR ENDED 1994 1994 YEAR JUNE 30, DECEMBER 31, THROUGH THROUGH ENDED ----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31, 1998 1997 1997 1996 1995 1994 1994(b) 1993 ---------- ---------- ---------- -------- -------- ------------- ------------- -------- (RESTATED)(c) (RESTATED)(c) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA) BALANCE SHEET DATA (END OF PERIOD): Real Estate, before accumulated depreciation............ $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $406,067 $47,500 $ 46,819 Real Estate, net of accumulated depreciation............ 2,287,309 945,969 1,503,922 745,145 448,425 392,368 32,270 33,701 Total assets.............. 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 39,042 38,914 Total mortgages and notes payable................. 1,314,475 644,457 808,503 522,146 268,692 141,315 40,873 41,893 Mandatory redeemable 1994 Cumulative Convertible Senior Preferred Stock................... -- -- -- -- -- 96,600 -- -- Stockholder's equity...... 1,394,394 388,477 1,045,300 215,749 169,032 140,319 (9,345) (7,556) OTHER DATA: Total owned properties (end of period)......... 210 107 147 94 56 48 4 4 Total owned apartment units (end of period)... 58,345 27,056 40,039 23,764 14,453 12,513 1,711 1,711 Equity Owned Properties... 74,318 88,690 83,431 -- -- -- -- -- Units under management (end of period)................. 68,248 70,213 69,587 19,045 19,594 20,758 29,343 28,422 Basic earnings per common share................... $ 0.62 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A Diluted earnings per common share............ $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A Distributions paid per common share............ $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A Cash flows provided by operating activities.... 5,838 25,035 73,032 38,806 25,911 16,825 2,678 2,203 Cash flows used in investing activities.... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) (924) (16,352) Cash flows provided by (used in) financing activities.............. 107,063 91,450 668,549 60,129 30,145 176,800 (1,032) 14,114 Funds from operations(f)........... $ 83,657 $ 28,441 $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A Weighted average number of common shares and OP Units outstanding(g).... 43,409 18,559 29,119 14,994 11,461 10,920 N/A N/A
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of Class A Common Stock. On such date, the Company and the Company Predecessors engaged in a business combination and consummated a series of related transactions which enabled the Company to continue and expand the property management and related businesses of the Company Predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of Class A Common Stock were repurchased by AIMCO in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO. (c) In the second quarter of 1996, the Company reorganized its ownership of the service company business. Prior to the 1996 reorganization, the Company reported the service company business on the equity method. After the 1996 reorganization, the service company business was conducted by a limited partnership controlled by the Company and was, therefore, consolidated. The Company has restated the balance sheet as of December 31, 1995 and 1994, and the statements of income and statements of cash flows for the year ended December 31, 1995 and the period from January 10, 1994 through December 31, 1994 to reflect the change. The restatement has no impact on net income, but does increase third party and affiliate management and other income, management and other expenses, amortization of management company goodwill and depreciation of non-real estate assets. In the third quarter of 1998, the Company reorganized its ownership of the service company business so that it is now conducted by the management companies, which are not consolidated. (d) Represents the Company's share of earnings from 83,431 units in which the Company purchased an equity interest from the NHP Real Estate Companies. (e) Represents the Company's equity earnings in the unconsolidated subsidiaries. (f) The Company's management believes that the presentation of funds from operations ("FFO"), when considered with the financial data determined in accordance with generally accepted accounting principles ("GAAP"), provides a useful measure of the Company's performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to the Company, nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization 18 24 (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO calculates FFO consistent with the NAREIT definition, adjusted for AIMCO's minority interest in the AIMCO Operating Partnership, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. The Company's management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of the Company's ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO's basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of income before minority interest in the AIMCO Operating Partnership to FFO:
FOR THE FOR THE SIX MONTHS FOR THE PERIOD ENDED YEAR ENDED JANUARY 10, JUNE 30, DECEMBER 31, 1994 TO ----------------- --------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ------- ------- ------- ------- ------- ------------ (IN THOUSANDS) Income before minority interest in AIMCO Operating Partnership.............. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property.... (2,526) -- (2,720) (44) -- -- Extraordinary item................. -- 269 269 -- -- -- Real estate depreciation, net of minority interests............... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill........... 4,727 474 948 500 428 76 Equity in earnings of Unconsolidated Subsidiaries: Real estate depreciation......... -- 1,263 3,584 -- -- -- Amortization of management contracts..................... 3,088 150 1,587 -- -- -- Deferred taxes................... 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation......... 9,131 697 6,280 -- -- -- Preferred stock dividends.......... (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations.............. $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
(g) Generally, after a one-year holding period, Common OP Units may be tendered for redemption at the option of the holder and, upon tender, may be acquired by AIMCO for shares of Class A Common Stock at an exchange ratio of one share of Class A Common Stock for each Common OP Unit (subject to adjustment). 19 25 PER SHARE AND PER UNIT DATA PER SHARE DATA Set forth below are historical earnings per share of Class A Common Stock, cash dividends per share of Class A Common Stock and book value per share of Class A Common Stock data of AIMCO. The data set forth below should be read in conjunction with the AIMCO audited financial statements and unaudited interim financial statements, including the notes thereto, which are incorporated by reference herein.
AIMCO ------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ---------- ------------ Basic earnings per weighted average share of Class A Common Stock outstanding......................................... $ 0.62 $ 1.09 Diluted earnings per weighted average share of Class A Common Stock outstanding.................................. $ 0.61 $ 1.08 Cash dividends per weighted average share of Class A Common Stock outstanding......................................... $1.125 $ 1.85 Book value per share of Class A Common Stock outstanding.... $24.01 $22.51
PER UNIT DATA Set forth below are historical earnings per Common OP Unit, cash distributions per Common OP Unit and book value per Common OP Unit. The data set forth below should be read in conjunction with the AIMCO Operating Partnership audited financial statements and unaudited interim financial statements, including the notes thereto, which are incorporated by reference herein.
AIMCO OPERATING PARTNERSHIP ---------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------- ------------ Basic earnings per weighted average Common OP Unit outstanding............................................... $ 0.61 $ 1.09 Diluted earnings per weighted average Common OP Unit outstanding............................................... $ 0.61 $ 1.08 Cash distributions per Common OP Unit outstanding........... $1.125 $ 1.85 Book value per Common OP Unit outstanding................... $23.47 $22.33
20 26 STOCK PRICES, DIVIDENDS AND DISTRIBUTIONS The Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." The following table sets forth, for the periods indicated, the high and low reported sales prices per share of Class A Common Stock, as reported on the NYSE Composite Tape, dividends per share declared on Class A Common Stock for the same periods, and distributions per unit declared on Common OP Units for the same periods. Common OP Units are subject to restrictions on transfer, and there is no trading market for the Common OP Units.
COMMON CLASS A COMMON STOCK OP UNITS -------------------------- ------------ CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- ---- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)................................... $37 1/8 $30 $ -- $ -- Third Quarter.............................. 41 30 15/16 0.5625 0.5625 Second Quarter............................. 38 7/8 36 1/2 0.5625 0.5625 First Quarter.............................. 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter............................. 38 32 0.5625 0.5625 Third Quarter.............................. 36 3/16 28 1/8 0.4625 0.4625 Second Quarter............................. 29 3/4 26 0.4625 0.4625 First Quarter.............................. 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter............................. 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.............................. 22 18 3/8 0.4250 0.4250 Second Quarter............................. 21 18 3/8 0.4250 0.4250 First Quarter.............................. 21 1/8 19 3/8 0.4250 0.4250
Because AIMCO has elected to be taxed for federal income tax purposes as a REIT, it is required to distribute annually to its stockholders at least 95% of its "REIT taxable income," which, as defined by the Code and the Treasury Regulations, is generally equivalent to net taxable ordinary income. AIMCO measures its economic profitability and pays regular dividends to its stockholders based on its operating results during the relevant period. The future payment of dividends by AIMCO will be at the discretion of the AIMCO Board of Directors and will depend on numerous factors, including financial condition, capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors the AIMCO Board of Directors deems relevant. See "Business of the Company -- Operating and Financial Strategies; Dividend Policy." On January 22, 1998, the AIMCO Board of Directors voted to increase the annual dividend rate on the Class A Common Stock to $2.25 per share. Such dividend increase was effective commencing with the dividend with respect to the fourth quarter of 1997 paid on February 13, 1998 and is subject to the factors described above, including AIMCO's future results of operations. Historically, the AIMCO Operating Partnership has made quarterly distributions to holders of Common OP Units (on a per unit basis) that are equal to the dividends paid on the Class A Common Stock (on a per share basis). Although this is expected to be true in the future, there can be no assurance that distributions on the Common OP Units will always be equal to the dividends on the Class A Common Stock. See "Risk Factors -- Risks Associated With an Investment in OP Units." 21 27 BUSINESS OF THE COMPANY The Company is engaged in the ownership, acquisition, development, expansion and management of multi-family apartment properties. As of October 1, 1998, the Company owned or managed 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, we were the largest owner and manager of multifamily apartment properties in the United States. The "AIMCO Properties" include: - "Owned Properties" -- properties that the Company owns or controls; - "Equity Properties" -- properties in which the Company owns a non-controlling (usually less than 30%) interest; and - "Managed Properties" -- properties that the Company manages for third parties and affiliates. As of October 1, 1998, the Company had 209 Owned Properties with 58,495 units, 1,335 Equity Properties with 239,789 units and 759 Managed Properties with 97,716 units. The Company manages all of the Owned Properties, a majority of the Equity Properties and all of the Managed Properties. OPERATING AND FINANCIAL STRATEGIES The Company uses the following operating and financing strategies to attempt to meet its objective of providing long-term, predictable FFO per share (certain terms used herein are defined below in "-- Accounting Policies and Definitions"): - Acquisition of Properties at Less Than Replacement Cost. The Company attempts to acquire properties at a significant discount to their replacement cost, which the Company believes will provide it with a competitive cost advantage in comparison to newly constructed properties. - Geographic Diversification. The Company operates in 49 states, the District of Columbia and Puerto Rico. This geographic diversification insulates the Company, to some degree, from inevitable downturns in any one market. Among Owned Properties and Equity Properties, Houston, Texas, the Company's largest single regional market, and Dallas, Texas, the Company's second largest regional market, accounted for approximately 13.9% and 8.0%, respectively, of the properties in which the Company has an ownership interest, on a pro rata basis. - Market Growth. The Company seeks to operate in markets where population and employment growth are expected to exceed the national average and where it believes it can become a regionally significant owner or manager of properties. The average annual population and employment growth rates from 1990 to 1995 in The Company's five largest regional markets were 2.3% and 2.6%, respectively, compared to national averages of 1.1% and 1.7%, respectively. For the 1996 to 1999 period, average annual population and employment growth rates in The Company's five largest regional markets are forecasted to be 2.2% and 3.6%, respectively, compared with projected national averages of 0.9% and 2.0%, respectively. - Product Diversification. The Company's portfolio of apartment properties also span a range of apartment community types, both within and among markets. The Company's properties are located in both urban and suburban areas and range from garden apartments to high rises and from luxury townhomes to affordable properties. - Capital Replacement. The Company believes that the physical condition and amenities of its apartment communities are important factors in its ability to maintain and increase rental rates. The Company also believes that a program of regular maintenance of the quality of its apartments, rather than episodic renovation, contributes to the reliability of earnings per share. The Company presently allocates approximately $300 annually per owned apartment unit for Capital Replacements and reserves unexpended amounts for future Capital Replacements. From time to time, the Company reevaluates its Capital Replacement requirements and updates the amount of its budgeted Capital 22 28 Replacements per owned apartment unit accordingly. For the six months ended June 30, 1998, the Company charged approximately $6.6 million for Capital Replacements to its reserve, and spent approximately $13.5 million, and had aggregate cumulative unexpended Capital Replacement reserves of approximately $2.4 million at June 30, 1998. - Debt Financing. The Company's strategy is generally to incur debt to increase its return on equity while maintaining acceptable interest coverage ratios. The Company seeks to match debt maturities to the character of the assets financed. Accordingly, the Company uses predominantly long-term, fixed-rate and self-amortizing debt in order to avoid the refunding or repricing risks of short-term borrowings. The Company also uses short-term debt financing to fund acquisitions and generally expects to refinance such borrowings with proceeds from equity offerings or long-term debt financings. As of June 30, 1998, approximately 6% of the Company's outstanding debt was short-term debt and 94% was long-term debt. - Dispositions. From time to time, the Company sells properties that do not meet its return on investment criteria or that are located in areas where the Company does not believe that the long-term real estate values justify the continued investment in the properties. Three properties in Houston and one property in each of Dallas and Phoenix were sold in October 1997. The Company recognized a net gain of approximately $2.8 million on the sales. In January 1998, the Company sold the Sun Valley Apartments, an apartment community containing 430 apartment units located in Salt Lake City, Utah, for $11.5 million, less selling costs of $0.3 million. The Company recognized a $3.3 million gain on the sale. Cash proceeds from the sale were used to repay a portion of the AIMCO Operating Partnership's outstanding short-term indebtedness. In September 1998, the Company sold the Rillito Village Apartments, an apartment community containing 272 apartments units located in Tucson, Arizona, for $6.8 million. The Company recognized a gain on the sale of approximately $75,000 and used the cash proceeds to pay down a portion of the outstanding balance on the Credit Facilities and to pay closing costs. - Dividend Policy. The Company pays dividends and distributions to share its profitability with its stockholders and limited partners. For the years ended December 31, 1997, 1996 and 1995, AIMCO distributed 66.5%, 72.3% and 75.1% of FFO to its stockholders. Amounts not distributed are available for reinvestment, stock repurchases, amortization of debt and provide a margin to insulate annual dividends from fluctuations in the Company's business. AIMCO's dividend for 1997 was $1.85 per share. It is the present policy of AIMCO to increase the dividend annually in an amount equal to one-half the rate of the projected increase in FFO, adjusted for capital replacements. In January 1998, AIMCO increased its dividend to $0.5625 per share per quarter, commencing with the February 13, 1998 dividend payment which is equivalent to an annualized dividend of $2.25 per share of Class A Common Stock. The minimum annual distribution requirement for REITs, which require the distribution of approximately 95% of "REIT taxable income" (see "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General"), may result in dividends increasing at a greater rate in the future. GROWTH STRATEGIES The Company seeks growth through two primary sources -- acquisition and internal expansion. Acquisition Strategies. The Company believes its acquisition strategies will increase profitability and predictability of earnings by increasing its geographic diversification, economies of scale and opportunities to provide traditional ancillary services to tenants at the AIMCO Properties. Since AIMCO's initial public offering in July 1994 (the "AIMCO IPO"), the Company has completed numerous acquisition transactions, expanding its portfolio of owned or managed properties from 132 apartment properties with 29,343 units to 2,303 apartment properties with 396,090 units as of October 1, 1998. 23 29 The Company believes that its demonstrated ability to evaluate and complete acquisitions, its property management record and its economies of scale, to the extent that the Company can operate a property more efficiently than the existing owner or some competing purchasers, all provide credibility and advantage in negotiating acquisitions. In addition, the ability to issue OP Units to sellers of properties may provide tax deferral opportunities to sellers and could give the Company an advantage over competing buyers that cannot offer such tax deferral opportunities. The Company acquires additional properties primarily in three ways: - Direct Acquisitions. The Company may directly acquire individual properties or portfolios and controlling interests in entities that own or control such properties or portfolios. During the year ended December 31, 1997, the Company has directly acquired 44 apartment properties for a total consideration of $467.4 million, consisting of $191.0 million in cash, approximately 1.9 million Common OP Units valued at $56.0 million and the assumption or incurrence of $220.4 million of indebtedness. See "-- Recent Property Acquisitions and Dispositions." - Acquisition of Managed Properties. The Company believes that its property management operations support its acquisition activities. Its relationships with owners of the Managed Properties may provide it with a means of learning of acquisition opportunities at an early stage of the sale process. In addition, its familiarity with the property and its ability to quickly evaluate the property give it an advantage in pursuing and completing any such acquisition in a timely fashion. Since the AIMCO IPO, the Company has acquired 12 properties comprising 3,530 units from its managed portfolio for $129.0 million. - Increasing its Interest in Partnerships. For properties where the Company owns a general partnership interest in the property-owning partnership, the Company may seek to acquire, subject to its fiduciary duties, the outstanding limited partnership interests for cash or, in some cases, in exchange for Common OP Units. After consummation of the Insignia Merger, the AIMCO Operating Partnership intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The AIMCO Operating Partnership, subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the AIMCO Operating Partnership to be issued pursuant to the Registration Statement of which this Prospectus forms a part, (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that allow limited partners to continue to hold their limited partnership interests. - In November 1996, the Company acquired the English Partnerships, which owned 22 apartment properties. The Company subsequently purchased pursuant to tender offers to acquire all of the outstanding limited partnership interests of 25 of the English Partnerships, approximately 46%, in the aggregate, of the outstanding limited partnership interests in such partnerships for $15.0 million in cash and approximately 71,500 OP Units valued at $1.7 million. - As of December 31, 1997, the Company has also commenced tender offers to acquire all of the outstanding limited partnership interests in 26 partnerships owning 25 properties for an aggregate amount of approximately $79.0 million. Through September 30, 1997, pursuant to such tender offers, the Company has purchased approximately 20.2%, in the aggregate, of the outstanding limited partnership interests for $16.0 million in cash. Internal Growth Strategies. The Company pursues internal growth through the following strategies: - Revenue Increases. The Company increases rents where feasible and seeks to improve occupancy rates. The Company believes that its policy of capital improvements, amenities and customer service allows it to maintain demand and to increase its rents above the rate of inflation in the local market. The Company's "same store" revenues from the Owned Properties (based on properties owned from period to period) have grown by 3.3% from the fiscal year ended December 31, 1995 to that ended December 31, 1996, and by 2.1% from the year ended December 31, 1996 to that ended December 31, 1997, compared to an urban consumer price inflation rate of 2.8% and 2.3% over the same periods. 24 30 - Redevelopment of Properties. The Company believes redevelopment of selected properties in superior locations provides advantages over development of new properties, because, compared with new development, redevelopment generally can be accomplished with relatively lower financial risk, in less time and with reduced delays attributable to governmental regulation. Recently the Company acquired and redeveloped Sun Katcher, a 360-unit property in Jacksonville, Florida, at a cost of $8.9 million, including $4.9 million in redevelopment costs. The Company also recently commenced the renovation and upgrading of Bay West, a 376-unit property in Tampa, Florida, for a projected cost of $4.8 million, to reposition the property in the marketplace. In addition, the Company expects to undertake a major renovation of the Morton Towers apartments, a 1,277 unit property located in Miami Beach, Florida, at an estimated cost of $35 million. The Company generally finances redevelopment initially with borrowings from the Credit Facilities, and subsequently arranges permanent financing. - Expansion of Properties. The Company believes that expansion within or adjacent to existing AIMCO Properties also provides growth opportunities at lower risk than new development. Such expansion can offer cost advantages to the extent common area amenities and on-site management personnel can service the expanded property. Recently the Company constructed 92 additional units at Fairways, in Phoenix, Arizona, at a cost of $6.5 million. The Company is planning the construction of 42 additional units at Township, in Littleton, Colorado, for a projected cost of more than $3.0 million. In addition, the Company owns or controls approximately 136 acres of vacant land, adjacent to existing Owned Properties or Equity Properties, which the Company believes is suitable for the development of approximately 1,300 apartment units. The Company generally finances expansions initially with borrowings from the Credit Facilities, and subsequently arranges permanent financing. - Conversion of Affordable Properties; Improvement of Performance. The Company believes that it may be able to significantly increase its return from its portfolio of affordable properties by improving operations at some of its properties or by converting some of its properties to conventional properties. While management of the Company has commenced review of the affordable properties, it has not yet made any determination as to the conversion of any affordable property. - Ancillary Services. The Company's management believes that its ownership and management of the AIMCO Properties provides it with unique access to a customer base for the sale of additional services which generate incremental revenues. The Company currently provides cable television, telephone services and carport, garage and storage space rental at certain AIMCO Properties. For example, as of June 30, 1998, the Company has installed cable television service to 12,600 units and currently has more than 7,400 subscribers. - Controlling Expenses. Cost reductions are accomplished by exploiting economies of scale. As a result of the size of its portfolio and its creation of regional concentrations of properties, the Company has the ability to leverage fixed costs for general and administrative expenditures and certain operating functions, such as insurance, information technology and training, over a larger property base. For example, the Company's insurance subsidiary provides workers' compensation and employer liability insurance company-wide, without incurring material incremental costs as the Company's property assets grow. The Company also instills cost discipline in its property managers by benchmarking their operations against the local market and other AIMCO Properties. 25 31 PROPERTY MANAGEMENT STRATEGIES Divisions. The Company's property management strategy is to achieve improvements in operating results by combining centralized financial control and uniform operating procedures with localized property management decision making and market knowledge. The Company's management operations are organized into five divisions, each supervised by a Division Vice President, who has, on average, 17 years of experience in apartment management.
APARTMENT APARTMENT UNITS COMMUNITIES DIVISIONS MANAGED(1) MANAGED(1) --------- ---------- ----------- Great West.......................................... 65,644 439 Southwest........................................... 62,718 309 Southeast........................................... 68,177 341 Mid Atlantic........................................ 63,390 473 Midwest............................................. 69,134 356 ------- ----- 329,063 1,918 ======= =====
- --------------- (1) Includes only units and apartment communities managed by the Company as of October 1, 1998. Does not include 31,311 units in 222 apartment communities in which the Company has an ownership interest but does not manage, and 35,716 units in 163 apartment communities, all of which are managed as a separate portfolio. Customer Service. The Company believes that resident satisfaction is directly related to the experience and training of on-site management personnel. The Company provides on-site management trained to respond promptly to residents' needs. To improve customer service, the Company conducts annual resident satisfaction surveys, guarantees that material defects will be corrected in 24 hours and refunds related rent if that commitment is not met. Personnel Policies. The Company has attempted to reduce turnover and retain experienced personnel by establishing an employee mentoring program and providing managers with incentive-based compensation. In addition, managing properties for third parties, the Company believes, improves performance at Managed Properties and Owned Properties alike by subjecting property managers to market-based pricing and service standards. START. Properties that are behind budget or face other significant operating difficulties receive direct supervision and intervention from START, a team of professionals, led by Executive Vice President Steven Ira, a founder of the Company. Members of START focus on not more than 10 to 15 properties at any one time, which allows them to focus sharply on the subject properties. START also oversees due diligence on acquisitions and major construction activities. Management Incentives. The Company believes that equity ownership by management and equity- and incentive-based compensation are important factors in attracting, retaining and motivating the most qualified and experienced personnel and directors. The Company's goal is to align management's interests with those of stockholders through the use of equity-based compensation plans to direct management's efforts towards enhancing shareholder value. 26 32 The following table reflects the ownership of Class A Common Stock and OP Units by senior management of the Company, which, as of June 30, 1998 (assuming full conversion of OP Units), represented approximately 7.5% of the outstanding Class A Common Stock.
TOTAL SHARES OF COMMON STOCK AND OP UNITS OWNED PERCENTAGE BY MANAGEMENT(1) OWNED INVESTMENT ---------------- ---------- ------------ AIMCO IPO................................. 926,000 8.6% $ 17 million December 31, 1995......................... 1,067,000 7.7% $ 21 million December 31, 1996......................... 2,303,000 12.5% $ 65 million December 31, 1997......................... 3,843,000 8.4% $141 million June 30, 1998............................. 4,045,000 7.5% $160 million
- --------------- (1) Encumbered by outstanding secured partially recourse notes in the amount of $45.5 million as of May 31, 1998. - On July 25, 1997, eleven senior managers of AIMCO purchased 1.1 million shares of Class A Common Stock at a price of $30 per share in exchange for promissory notes secured by such stock, which notes are recourse as to 25% of the principal owed. - AIMCO pays a majority of the compensation to its outside directors in Class A Common Stock. - AIMCO issues all stock options at the then-current market price, and requires that employees own Class A Common Stock before receiving their options. As of May 31, 1998, the number of outstanding options was 5,235,997. On January 21, 1998, the AIMCO Operating Partnership sold an aggregate of 15,000 OP Units designated as Class I High Performance Units (the "High Performance Units") to a joint venture formed by fourteen of the Company's officers, and to three of AIMCO's non-employee directors for an aggregate purchase price of $2,070,000, of which $1,980,300 was paid by the joint venture and an aggregate of $89,700 was paid by three non-employee directors. The purchase price of the High Performance Units was determined by the AIMCO Board of Directors, based upon the advice of an independent valuation expert that this purchase price represented the fair market value of the High Performance Units. The sale of the High Performance Units was ratified by the stockholders on May 8, 1998. Holders of High Performance Units have no rights to receive distributions or allocations of income or loss, or to redeem their High Performance Units prior to the date (the "Valuation Date") that is the earlier of (i) January 1, 2001, or (ii) the date on which a change of control occurs. If, on the Valuation Date, the cumulative Total Return of the Class A Common Stock from January 1, 1998 to the Valuation Date (the "Measurement Period") exceeds 115% of the cumulative Total Return (as defined below) of a peer group index over the same period, and is at least the equivalent of a 30% cumulative Total Return over three years (the "Minimum Return"), then, on and after the Valuation Date, holders of the 15,000 High Performance Units will be entitled to receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times (subject to certain exceptions upon liquidation of the AIMCO Operating Partnership) as would holders of a number of OP Units equal to the quotient obtained by dividing (i) the product of (A) 15% of the amount by which the cumulative Total Return of the Class A Common Stock over the Measurement Period exceeds the greater of 115% of the peer group index or the Minimum Return, multiplied by (B) the weighted average market value of the Company's equity capitalization (including Class A Common Stock and OP Units) by (ii) the market value of one share of Class A Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative Total Return of the Class A Common Stock does not satisfy these criteria, then, on and after the Valuation Date, holders of the 15,000 High Performance Units will be entitled to receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times (subject to certain exceptions upon a liquidation of the AIMCO Operating Partnership) as would holders of 150 OP Units. For purposes of 27 33 determining the market value of Class A Common Stock or OP Units as of any date, the average closing price of the Class A Common Stock for the 20 trading days immediately preceding such date is used. It is expected that the Morgan Stanley REIT Index, a capitalization-weighted index with dividends reinvested of the most actively traded real estate investment trusts, will be used as the peer group index for purposes of the High Performance Units. "Total Return" means, for any security and for any period, the cumulative total return for such security over such period, as measured by (i) the sum of (a) the cumulative amount of dividends paid in respect of such security for such period (assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date), and (b) an amount equal to (x) the security price at the end of such period, minus (y) the security price at the beginning of such period, divided by (ii) the security price at the beginning of the measurement period; provided, however, that if the foregoing calculation results in a negative number, the "Total Return" shall be equal to zero. Upon the occurrence of a change of control, any holder of High Performance Units may, subject to certain restrictions, require the AIMCO Operating Partnership to redeem all or a portion of the High Performance Units held by such party in exchange for a cash payment per unit equal to the market value of a share of Class A Common Stock at the time of redemption. However, in the event that any High Performance Units are tendered for redemption, the AIMCO Operating Partnership's obligation to pay the redemption price is subject to the prior right of AIMCO to acquire such High Performance Units in exchange for an equal number of shares of Class A Common Stock (subject to certain adjustments). ACCOUNTING POLICIES AND DEFINITIONS The Company has the following accounting policies and definitions: Funds from Operations. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO in a manner consistent with the NAREIT definition, which includes adjustments for minority interest in the AIMCO Operating Partnership, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payment of dividends on perpetual preferred stock. The Company's management believes that presentation of FFO provides investors with industry accepted measurements which help facilitate understanding of the Company's ability to meet required dividend payments, capital expenditures, and principal payments on its debt. There can be no assurance that the Company's basis of computing FFO is comparable with that of other REITs. Capital Replacements. The Company capitalizes spending for items which generally cost more than $250 and have a useful life of more than one year, such as carpet replacement, new appliances, new roofs or parking lot repaving. Capitalized spending which maintains a property is termed a "Capital Replacement." In the experience of the Company's management, this spending is better considered a recurring cost of preserving an asset rather than an additional investment. Consolidation. For financial reporting purposes, the Company consolidates the results of those corporations in which it owns a majority of the outstanding voting stock, and those limited partnerships and limited liability companies in which it owns both a general partnership or managing member interest and controls investment decisions with respect to the underlying assets. The Company generally has a 30% to 51% economic interest in such entities. Entities in which the Company has less than a 30% economic interest or limited control are accounted for on the equity method. The Company policy is generally to hold Class C properties and affordable properties (substantially all of which are Class C properties) in unconsolidated partnerships. The Company accounts for these properties on the equity method in accordance with GAAP. 28 34 POLICIES OF THE COMPANY WITH RESPECT TO CERTAIN OTHER ACTIVITIES The following is a discussion of certain other investment objectives and policies, financing policies and other policies of the Company. These policies are determined by the officers and directors of AIMCO and may be amended or revised from time to time at their discretion without a vote of AIMCO's stockholders. As the sole general partner of the AIMCO Operating Partnership, AIMCO also determines the investment policies of the AIMCO Operating Partnership. Investment in Others. The Company may also participate with other entities in property ownership, through joint ventures or other types of co-ownership. Any such equity investment may be subject to existing mortgage financing and other indebtedness which would have priority over the equity of the Company in that property. Securities of or Interests in Persons Primarily Engaged in Real Estate Activities. The Company may also acquire securities of or interests in persons engaged in the acquisition, redevelopment and/or management of multifamily apartment properties. Investments in Real Estate Mortgages. While the Company generally emphasizes direct real estate investments, it may, in its discretion and subject to the percentage ownership limitations and gross income tests necessary for REIT qualification, invest in mortgage and other indirect real estate interests, including securities of other real estate investment trusts. The Company has not previously invested in mortgages or securities of other real estate investment trusts and the Company does not presently intend to invest to a significant extent in mortgages or securities of other real estate investment trusts. Operating and Financing Policies. The Company seeks to maintain a ratio of EBITDA (less a provision of approximately $300 per owned apartment unit) to debt (the "Debt Coverage Ratio") of at least 2 to 1, and to match debt maturities to the character of the assets financed. See "-- Operating and Financial Strategies -- Debt Financing." The Company, however, may from time to time re-evaluate borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors. The Company may modify its borrowing policy and may increase or decrease its Debt Coverage Ratio policy. To the extent that the AIMCO Board of Directors determines to seek additional capital, the Company may raise such capital through additional equity offerings, debt financing or retention of cash flow (after consideration of provisions of the Code requiring the distribution by a REIT of a certain percentage of taxable income and taking into account taxes that would be imposed on undistributed taxable income), or through a combination of these sources. The Company presently anticipates that any additional borrowings will be made through the AIMCO Operating Partnership, although AIMCO might incur borrowings that would be reloaned to the AIMCO Operating Partnership. The AIMCO Operating Partnership cannot incur indebtedness that is recourse to AIMCO without AIMCO's approval. AIMCO may approve the AIMCO Operating Partnership's incurring additional debt that is recourse to the AIMCO Operating Partnership. Borrowings may be unsecured or may be secured by any or all assets of AIMCO, the AIMCO Operating Partnership, or any existing or new property and may have full or limited recourse to all or any portion of the assets of AIMCO, the AIMCO Operating Partnership, or any existing or new property. The Company has not established any limit on the number or amount of mortgages that may be placed on any single property or on its portfolio as a whole. AIMCO may also determine to issue securities senior to the Class A Common Stock, including preferred stock and debt securities (either of which may be convertible into capital stock or be accompanied by warrants to purchase capital stock). The Company may also determine to finance acquisitions through the exchange of properties or issuance of additional OP Units, shares of Class A Common Stock or other securities. If the AIMCO Board of Directors determines to raise additional equity capital, the AIMCO Board of Directors has the authority, without stockholder approval, to issue additional shares of Class A Common Stock or other capital stock (including securities senior to the Class A Common Stock) in any manner (and on such terms and for such consideration) it deems appropriate, including in exchange for property. Such 29 35 issuances might cause a dilution of a stockholder's investment in AIMCO. If the AIMCO Board of Directors determines to raise additional equity capital to fund investments by the AIMCO Operating Partnership, AIMCO will contribute such funds to the AIMCO Operating Partnership as a contribution to capital and purchase of additional general partnership interests. AIMCO may issue additional shares of Class A Common Stock in connection with the acquisition of OP Units that are tendered to the AIMCO Operating Partnership for redemption. The AIMCO Board of Directors also has the authority to cause the AIMCO Operating Partnership to issue additional OP Units in any manner (and on such terms and for such consideration) as it deems appropriate, including in exchange for property. Any such new OP Units will be redeemable at the option of the holder, which redemption AIMCO intends to cause to be made in Class A Common Stock pursuant to the redemption rights. Conflict of Interest Policies. The Company has adopted certain policies designed to minimize or eliminate conflicts of interests between the Company and its executive officers and directors. Without the approval of a majority of the disinterested directors, the Company will not (i) acquire from or sell to any director, officer or employee of the Company or any entity in which a director, officer or employee of the Company owns more than a 1% interest, or acquire from or sell to any affiliate of any of the foregoing, any assets or other property of the Company, (ii) make any loan to or borrow from any of the foregoing persons, or (iii) engage in any material transaction with the foregoing. In addition, the Company has entered in to employment agreements with Messrs. Considine, Kompaniez and Ira which include provisions intended to eliminate or minimize potential conflicts of interest, and which provide that those persons will be prohibited from engaging directly or indirectly in the acquisition, development, operation or management of other multifamily apartment properties outside of the Company, except with respect to certain investments currently held by such persons, as to which investments those persons have committed to an orderly liquidation. There can be no assurance, however, that these policies always will be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might fail to reflect fully the interests of AIMCO's stockholders as a whole. Policies with Respect to Other Activities. The Company has authority to offer shares of its capital stock or other securities and to repurchase or otherwise reacquire its shares or any other securities, has done so, and may engage in such activities in the future. From its inception, the Company has made loans aggregating $5.1 million to certain entities owning properties subsequently acquired by the Company. No balances remain outstanding on such loans. In the same period, the Company has made loans aggregating $76.5 million to its officers for the purchase of Class A Common Stock and $5.1 million to its officers and other entities to acquire interests in subsidiaries of the Company. The outstanding balances on such loans as of August 31, 1998 were $42.7 million and $3.1 million, respectively. Messrs. Considine and Kompaniez have repaid in part, using $2.0 million in proceeds distributed to them from the sale of NHP Common Stock by AIMCO/NHP Holdings, Inc. ("ANHI") to AIMCO, outstanding promissory notes payable by them to ANHI in an aggregate amount of $3.2 million, which loan was made to them by ANHI to acquire their interest in ANHI. In addition, the Company from time to time advances amounts for relocation and other expenses. The Company has not engaged in underwriting securities of other issuers. Each of AIMCO and the AIMCO Operating Partnership intend to make investments in such a way that it will not be treated as an investment company under the Investment Company Act of 1940, as amended. The Company may invest in the securities of other issuers engaged in the ownership, acquisition or management of multifamily apartment properties for the purpose of exercising control. At all times, the Company intends to make investments in such a manner as to be consistent with the requirements of the Code for AIMCO to qualify as a REIT unless, because of changing circumstances or changes in the Code (or in Treasury Regulations), the AIMCO Board of Directors determines that it is no longer in the best interest of AIMCO to qualify as a REIT. AIMCO, as a REIT, is required to distribute annually to holders of Class A Common Stock at least 95% of its "REIT taxable income," which, as defined by the Code and the Treasury Regulations, is generally equivalent to net taxable ordinary income. AIMCO measures its economic profitability, and intends to pay 30 36 regular dividends to its stockholders, based on earnings during the relevant period. However, the future payment of dividends by AIMCO will be at the discretion of the AIMCO Board of Directors and will depend on numerous factors, including AIMCO's financial condition, its capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors as the AIMCO Board deems relevant. YEAR 2000 COMPLIANCE The Company's management has determined that it will be necessary to modify or replace certain accounting and operational software and hardware to enable its computer systems to operate properly subsequent to December 31, 1999. As a result, management has appointed a team of internal staff to research and manage the conversion or replacement of existing systems to comply with year 2000 requirements. The team's activities are designed to ensure that there is no adverse effect on the Company's core business operations, and that transactions with tenants, suppliers and financial institutions are fully supported. The Company utilizes numerous accounting and reporting software packages and computer hardware to conduct its business, some of which already comply with year 2000 requirements. Management estimates that the modification or replacement of non-compliant accounting and reporting software and hardware will total approximately $0.3 million. The Company's management also believes that certain of the Owned Properties possess operational systems (e.g. elevators, fire alarm and extinguishment systems and security systems) which also must be modified or replaced in order to function properly in the 21st century. Management is currently engaged in the identification of all non-compliant operational systems, and has not yet determined the estimated cost of replacing or modifying such systems. DESCRIPTION OF PREFERRED STOCK GENERAL AIMCO may issue, from time to time, shares of one or more series or classes of Preferred Stock. The following description sets forth certain general terms and provisions of the Preferred Stock to which any Prospectus Supplement may relate. The particular terms of any series of Preferred Stock that may be issued and sold pursuant hereto, and the extent, if any, to which such general provisions may apply to the series of Preferred Stock so offered will be described in the Prospectus Supplement relating to such Preferred Stock. The following summary of certain provisions of the Preferred Stock do not purport to be complete and is subject to, and is qualified in its entirety by express reference to, the provisions of the Charter relating to a specific series of the Preferred Stock, which will be in the form filed as an exhibit to or incorporated by reference in the Registration Statement of which this Prospectus is a part at or prior to the time of issuance of such series of Preferred Stock. The Charter authorizes the issuance of up to 510,750,000 shares of its capital Stock. As of October 1, 1998, 486,027,500 shares were classified as Class A Common Stock, 262,500 shares were classified as Class B Common Stock, 750,000 shares were classified as Class B Cumulative Convertible Preferred Stock, par value $.01 per share ("Class B Preferred Stock"), 2,760,000 shares were classified as Class C Cumulative Preferred Stock, par value $.01 per share ("Class C Preferred Stock"), 4,600,000 shares were classified as Class D Cumulative Preferred Stock, par value $.01 per share ("Class D Preferred Stock"), 10,000,000 shares were classified as Class E Cumulative Preferred Stock, par value $.01 per share ("Class E Preferred Stock"), 4,050,000 shares were classified as Class G Cumulative Preferred Stock, par value $.01 per share ("Class G Preferred Stock"), and 2,300,000 shares were classified as Class H Cumulative Preferred Stock, par value $.01 per share ("Class H Preferred Stock"). Under the Charter, the AIMCO Board of Directors has the authority to classify and reclassify any of its unissued capital Stock into shares of Preferred Stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of capital Stock including, but not limited to, ownership restrictions consistent with the Ownership Limit with respect to each 31 37 series or class of capital Stock, and the number of shares constituting each series or class, and to increase or decrease the number of shares of any such series or class, to the extent permitted by the Maryland General Corporation Law (the "MGCL"). The AIMCO Board of Directors is authorized to determine for each series of Preferred Stock, and the Prospectus Supplement will set forth with respect to each class or series that may be issued and sold pursuant hereto: (i) the designation of such shares and the number of shares that constitute such series, (ii) the dividend rate (or the method of calculation thereof), if any, on the shares of such series and the priority as to payment of dividends with respect to other classes or series of capital stock of AIMCO, (iii) the dividend periods (or the method of calculation thereof), (iv) the voting rights of the shares, (v) the liquidation preference and the priority as to payment of such liquidation preference with respect to other classes or series of capital stock of AIMCO and any other rights of the shares of such series upon any liquidation or winding-up of AIMCO, (vi) whether or not and on what terms the shares of such series will be subject to redemption or repurchase at the option of AIMCO, (vii) whether and on what terms the shares of such series will be convertible into or exchangeable for other debt or equity securities of AIMCO, (viii) whether the shares of such series of Preferred Stock will be listed on a securities exchange, (ix) any special United States federal income tax considerations applicable to such series, and (x) the other rights and privileges and any qualifications, limitations or restrictions of such rights or privileges of such series not inconsistent with the Charter and the MGCL. DIVIDENDS Holders of shares of Preferred Stock, shall be entitled to receive, when and as declared by the AIMCO Board of Directors, out of funds of AIMCO legally available therefor, an annual cash dividend payable at such dates and at such rates, if any, per share per annum as set forth in the applicable Prospectus Supplement. Each series of Preferred Stock that may be issued and sold pursuant hereto, will rank junior as to dividends to any Preferred Stock that may be issued in the future that is expressly senior as to dividends to the Preferred Stock. If at any time AIMCO has failed to pay accrued dividends on any such senior shares at the time such dividends are payable, AIMCO may not pay any dividend on the Preferred Stock or redeem or otherwise repurchase shares of Preferred Stock until such accumulated but unpaid dividends on such senior shares have been paid or set aside for payment in full by AIMCO. No dividends (other than in Class A Common Stock or Class B Common Stock (collectively, the "Common Stock") or other capital Stock ranking junior to the Preferred Stock of any series as to dividends and upon liquidation) shall be declared or paid or set aside for payment, nor shall any other distribution be declared or made upon the Common Stock, or any other capital stock of AIMCO ranking junior to or on a parity with the Preferred Stock of such series as to dividends, nor shall any Common Stock or any other capital stock of AIMCO ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by AIMCO (except by conversion into or exchange for other capital stock of AIMCO ranking junior to the Preferred Stock of such series as to dividends and upon liquidation) unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for all past dividend periods and the then current dividend period and (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period; provided, however, that any monies theretofore deposited in any sinking fund with respect to any Preferred Stock in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of such Preferred Stock in accordance with the terms of such sinking fund, regardless of whether at the time of such application full cumulative dividends upon shares of the Preferred Stock outstanding on the last dividend payment date shall have been paid or declared and set apart for payment; and provided, further, that any such junior or parity preferred stock or Common 32 38 Stock may be converted into or exchanged for stock of AIMCO ranking junior to the Preferred Stock as to dividends. The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear interest. CONVERTIBILITY The applicable Prospectus Supplement for each series of Preferred Stock that may be issued and sold pursuant hereto will set forth the terms and conditions of such series of Preferred Stock with respect to whether such series of Preferred Stock will be convertible into, or exchangeable for, other securities or property, including the initial conversion or exchange rate and any adjustments thereto, the conversion or exchange period and any other conversion or exchange provisions. REDEMPTION AND SINKING FUND The applicable Prospectus Supplement for each series of Preferred Stock that may be issued and sold pursuant hereto will set forth the terms and conditions of such series of Preferred Stock with respect to redemption rights and the benefit of any sinking fund, including the dates and redemption prices of any such redemption, any conditions thereto, and any other redemption or sinking fund provisions. LIQUIDATION RIGHTS In the event of any liquidation, dissolution or winding up of AIMCO, the holders of shares of each series of Preferred Stock that may be issued and sold pursuant hereto are entitled to receive out of assets of AIMCO available for distribution to stockholders, before any distribution of assets is made to holders of: (i) any other shares of Preferred Stock ranking junior to such series of Preferred Stock as to rights upon liquidation, dissolution or winding up; and (ii) shares of Common Stock, liquidating distributions per share in the amount of the liquidation preference specified in the applicable Prospectus Supplement for such series of Preferred Stock plus any dividends accrued and accumulated but unpaid to the date of final distribution; but the holders of each series of Preferred Stock will not be entitled to receive the liquidating distribution of, plus such dividends on, such shares until the liquidation preference of any shares of AIMCO's capital stock ranking senior to such series of the Preferred Stock as to the rights upon liquidation, dissolution or winding up shall have been paid (or a sum set aside therefor sufficient to provide for payment) in full. If upon any liquidation, dissolution or winding up of AIMCO, the amounts payable with respect to the Preferred Stock, and any other Preferred Stock ranking as to any such distribution on a parity with the Preferred Stock are not paid in full, the holders of the Preferred Stock and such other parity preferred stock will share ratably in any such distribution of assets in proportion to the full respective preferential amount to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Preferred Stock will not be entitled to any further participation in any distribution of assets by AIMCO. Neither a consolidation or merger of AIMCO with another corporation nor a sale of securities shall be considered a liquidation, dissolution or winding up of AIMCO. VOTING RIGHTS Holders of Preferred Stock that may be issued and sold pursuant hereto will have the voting rights required by law and the voting rights described below. Whenever dividends on any applicable series of Preferred Stock or any other class or series of stock ranking on a parity with the applicable series of Preferred Stock with respect to the payment of dividends shall be in arrears for the equivalent of six quarterly dividend periods, whether or not consecutive, the holders of shares of such series of Preferred Stock (voting separately as a class with all other series of Preferred Stock then entitled to such voting rights) will be entitled to vote for the election of two of the authorized number of directors of AIMCO at the next annual meeting of stockholders and at each subsequent meeting until all dividends accumulated on such series of Preferred Stock shall have been fully paid or set apart for payment. The term of office of all directors elected by the holders of 33 39 such Preferred Stock shall terminate immediately upon the termination of the right of the holders of such Preferred Stock to vote for directors. Holders of shares of Preferred Stock that may be issued and sold pursuant hereto will have one vote for each share held. So long as any shares of any series of Preferred Stock remain outstanding, AIMCO shall not, without the consent of holders of at least two-thirds of the shares of such series of Preferred Stock outstanding at the time, voting separately as a class with all other series of Preferred Stock of AIMCO upon which like voting rights have been conferred and are exercisable, (i) issue or increase the authorized amount of any class or series of stock ranking prior to the outstanding Preferred Stock as to dividends or upon liquidation or (ii) amend, alter or repeal the provisions of the Charter relating to such series of Preferred Stock, whether by merger, consolidation or otherwise, so as to materially adversely affect any power, preference or special right of such series of Preferred Stock or the holders thereof; provided, however, that any increase in the amount of the authorized Common Stock or authorized Preferred Stock or any increase or decrease in the number of shares of any series of Preferred Stock or the creation and issuance of other series of Common Stock or Preferred Stock ranking on a parity with or junior to Preferred Stock as to dividends and upon liquidation, dissolution or winding up shall not be deemed to materially adversely affect such powers, preferences or special rights. MISCELLANEOUS The holders of Preferred Stock will have no preemptive rights. The Preferred Stock that may be issued and sold pursuant hereto, upon issuance against full payment of the purchase price therefor, will be fully paid and nonassessable. Shares of Preferred Stock redeemed or otherwise reacquired by AIMCO shall resume the status of authorized and unissued shares of Preferred Stock undesignated as to series, and shall be available for subsequent issuance. The applicable Prospectus Supplement will set forth the restrictions, if any, on repurchase or redemption of the Preferred Stock while there is any arrearage on sinking fund installments. Payment of dividends on, and the redemption or repurchase of, any series of Preferred Stock may be restricted by loan agreements, indentures and other agreements entered into by AIMCO. The applicable Prospectus Supplement will describe any material contractual restrictions on such dividend payments. OTHER RIGHTS The shares of a series of Preferred Stock that may be issued and sold pursuant hereto will have the preferences, voting powers or relative, participating, optional or other special rights set forth above or in the applicable Prospectus Supplement or the Charter or as otherwise required by law. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for each series of Preferred Stock that may be issued and sold pursuant hereto will be designated in the applicable Prospectus Supplement. CLASS B PREFERRED STOCK On August 4, 1997, AIMCO issued 750,000 shares of its Class B Preferred Stock to an institutional investor (the "Preferred Share Investor") in a private transaction. The Class B Preferred Stock (a) ranks prior to the Common Stock and the Class E Preferred Stock with respect to dividends, liquidation, dissolution and winding-up, and has an aggregate liquidation value of $75 million and (b) ranks on parity with the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock and the Class H Preferred Stock. Holders of the Class B Preferred Stock are entitled to receive, when, as and if declared by the AIMCO Board of Directors, quarterly cash dividends per share equal to the greater of (i) $1.78125 (the "Base Rate") and (ii) the cash dividends declared on the number of shares of Class A Common Stock into which one share of Class B Preferred Stock is convertible. On or after August 4, 1998, each share of Class B Preferred Stock may be converted at the option of the holder into 3.28407 shares of Class A Common Stock, subject to certain anti-dilution adjustments. AIMCO may redeem any or all of the Class B Preferred Stock on or after August 4, 2002, at a redemption price of $100 per share, plus unpaid dividends accrued on the shares redeemed. 34 40 Holders of Class B Preferred Stock, voting as a class with the holders of all AIMCO capital stock that ranks on a parity with the Class B Preferred Stock with respect to the payment of dividends or upon liquidation, dissolution, winding up or otherwise ("Class B Parity Stock"), will be entitled to elect (i) two directors of AIMCO if six quarterly dividends (regardless of whether consecutive) on the Class B Preferred Stock or any Class B Parity Stock are in arrears, and (ii) one director of AIMCO if for two consecutive quarterly dividend periods AIMCO fails to pay at least $0.4625 in dividends on the Class A Common Stock. The affirmative vote of the holders of two-thirds of the outstanding shares of Class B Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class B Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class B Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. If the IRS were to make a final determination that AIMCO does not qualify as a REIT in accordance with Sections 856 through 860 of the Internal Revenue Code, the Base Rate for the quarterly cash dividends on the Class B Preferred Stock would increase to $3.03125 per share. The agreement pursuant to which AIMCO issued the Class B Preferred Stock (the "Preferred Share Purchase Agreement") provides that the Preferred Share Investor may require AIMCO to repurchase such investor's Class B Preferred Stock in whole or in part at a price of 105% of the liquidation preference thereof, plus accrued and unpaid dividends on the purchased shares, if (i) AIMCO shall fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code, or (ii) upon the occurrence of a change of control (as defined in the Preferred Share Purchase Agreement). The Preferred Share Purchase Agreement also provides that, so long as the Preferred Share Investor owns Class B Preferred Stock with an aggregate liquidation preference of at least $18.75 million, neither AIMCO, the AIMCO Operating Partnership nor any subsidiary of AIMCO may issue preferred securities or incur indebtedness for borrowed money if immediately following such issuance and after giving effect thereto and the application of the net proceeds therefrom, AIMCO's ratio of aggregate consolidated earnings before interest, taxes, depreciation and amortization to aggregate consolidated fixed charges for the four fiscal quarters immediately preceding such issuance would be less than 1.5 to 1. Subject to certain exceptions specified in the provisions of the Charter establishing the terms of the Class B Preferred Stock, 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 Securities Exchange Act of 1934, shares of Class B Preferred Stock with a value in excess of the amount by which (i) 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 aggregate value of all shares of capital stock of AIMCO exceeds (ii) the aggregate value of all shares of capital stock of AIMCO, other than Class B Preferred Stock, that are owned by such holder (the "Class B Preferred Ownership Limit"). The AIMCO Board of Directors may waive such ownership limit if evidence satisfactory to the AIMCO Board and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. 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 B Preferred Stock in excess of the Class B Preferred Ownership Limit, or shares of Class B Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Internal Revenue Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the stock. Shares of Class B Preferred Stock transferred in excess of the Class B Preferred 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 Class B Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by 35 41 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 the AIMCO Board determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class B Preferred Stock bear a legend referring to the restrictions described above. CLASS C PREFERRED STOCK On December 23, 1997, AIMCO issued 2,400,000 shares of its 9% Class C Preferred Stock in an underwritten public offering for net proceeds of approximately $57.9 million. The Class C Preferred Stock (a) ranks prior to the Common Stock, the Class E Preferred Stock and any other class or series of capital stock of AIMCO if the holders of the Class C Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class C Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock and the Class H Preferred Stock, and with any other class or series of capital stock of AIMCO if the holders of such class of stock or series and the Class C Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class C Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class C Preferred Stock ("Class C Senior Stock"). Holders of Class C Preferred Stock are entitled to receive cash dividends at the rate of 9% per annum of the $25 liquidation preference (equivalent to $2.25 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class C Junior Stock, the holders of Class C Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class C Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class C Parity Stock, then such proceeds shall be distributed among the holders of Class C Preferred Stock and any such other Class C Parity Stock ratably in the same proportion as the respective amounts that would be payable on such Class C Preferred Stock and any such other Class C Parity Stock if all amounts payable thereon were paid in full. On and after December 23, 2002, AIMCO may redeem shares of Class C Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class C Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class C Preferred Stock has no stated maturity and will not be subject to any sinking find or mandatory redemption provisions. Holders of shares of Class C Preferred Stock have no voting rights, except that if distributions on Class C Preferred Stock or any series or class of Class C Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class C Preferred Stock (voting together as a single class with all other shares of Class C Parity Stock which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class C Preferred Stock called for such purpose. The affirmative vote of the holders of two thirds of the outstanding shares of Class C Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class C Preferred Stock, and to approve the issuance of any capital Stock that ranks senior to the Class C Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. 36 42 There are ownership restrictions applicable to the Class C Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS D PREFERRED STOCK On February 19, 1998, AIMCO issued 4,200,000 shares of its 8 3/4% Class D Preferred Stock, in an underwritten public offering, for net proceeds of approximately $101.5 million. The Class D Preferred Stock (a) ranks prior to the Common Stock, the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class D Preferred Stock are to be entitled to the receipt of dividends of or amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class D Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class G Preferred Stock and the Class H Preferred Stock, and with any other class or series of capital stock of AIMCO if the holders of such class of stock or series and the Class D Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class D Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class D Preferred Stock ("Class D Senior Stock"). Holders of Class D Preferred Stock are entitled to receive cash dividends at the rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to $2.1875 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class D Junior Stock, the holders of Class D Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class D Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class D Parity Stock, then such proceeds shall be distributed among the holders of Class D Preferred Stock and any such other Class D Parity Stock ratably in the same proportion as the respective amounts that would be payable on such Class D Preferred Stock and any such other Class D Parity Stock if all amounts payable thereon were paid in full. On and after February 19, 2003, AIMCO may redeem shares of Class D Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class D Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class D Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class D Preferred Stock have no voting rights, except that if distributions on Class D Preferred Stock or any series or class of Class D Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class D Preferred Stock (voting together as a single class with all other shares of Class D Parity Stock which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class D Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class D Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class D Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class D Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class D Preferred Stock that are similar to those for the Class B Preferred Stock. 37 43 CLASS E PREFERRED STOCK On October 1, 1998, Insignia Financial Group, Inc. was merged into AIMCO. As merger consideration, AIMCO will issue to former Insignia stockholders up to 8,945,921 shares of Class E Preferred Stock. The Class E Preferred Stock (a) ranks prior to Common Stock, and any other class or series of capital stock of AIMCO if holders of the Class E Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class E Junior Stock"), (b) ranks on a parity with any class or series of capital stock of AIMCO if the holders of such class or series of stock and the Class E Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class E Parity Stock") and (c) ranks junior to the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and any other class or series of capital stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class E Preferred Stock ("Class E Senior Stock"). On any date (each, a "Dividend Payment Date") on which cash dividends are paid on the Class A Common Stock prior to the Class E Conversion Date (as defined below), holders of Class E Preferred Stock are entitled to receive cash dividends payable in an amount per share of Class E Preferred Stock equal to the per share dividend payable on Class A Common Stock on such Dividend Payment Date. Such dividends shall be cumulative from the date of original issue, and shall be payable quarterly in arrears on the Dividend Payment Dates, commencing on the first Dividend Payment Date after the date of original issue. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class E Junior Stock, the holders of Class E Preferred Stock shall be entitled to receive a liquidation preference of $1 per share plus the Special Dividend if such dividend is unpaid on the date of the final distribution to such holders (collectively, the "Class E Liquidation Preference"), and thereafter each share of Class E Preferred Stock shall have the same rights with respect to assets of AIMCO as one share of Class A Common Stock. On or after the twentieth anniversary of the Effective Time, AIMCO may redeem shares of Class E Preferred Stock, in whole or in part, at a cash redemption price equal to the sum of (i) the greater of (A) the Current Market Price (as defined below) of the Class A Common Stock on the date specified for redemption by AIMCO in a notice sent to holders of Class E Preferred Stock (the "Class E Call Date") or (B) the AIMCO Index Price, but determined without giving effect to the limitation of $38.00 per share, plus (ii) all accrued and unpaid dividends to the Call Date. The Class E Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. "Current Market Price" per share of Class A Common Stock on any date means the average of the daily market prices of a share of Class A Common Stock for the five consecutive trading days preceding such date. The market price for each such day shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Class A Common Stock is not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Stock is listed or admitted to trading or, if the Class A Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Class A Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Class A Common Stock selected by the AIMCO Board. 38 44 Holders of shares of Class E Preferred Stock are entitled to one-half ( 1/2) of one vote with respect to all matters in which holders of Class A Common Stock are entitled to vote thereon. In addition, if any portion of the Special Dividend has yet to be declared and paid to the holders of Class E Preferred Stock on January 15, 1999, or if distributions on Class E Preferred Stock or any series or class of Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class E Preferred Stock (voting together as a single class with all other shares of Class E Parity Stock which are entitled to similar voting rights) will be entitled to vote for the election of such additional directors. Such right shall continue until full cumulative dividends for all past dividend periods on all shares of Preferred Stock, including any shares of Class E Preferred Stock, have been paid or declared and set apart for payment. On any date which the Special Dividend, or any portion thereof, is paid (which may be declared by the AIMCO Board in its sole discretion), the holders of Class E Preferred Stock shall be entitled to receive an amount per share of Class E Preferred Stock equal to the Special Dividend divided by the Series E Conversion Ratio (as defined in the Insignia Merger Agreement). After January 15, 1999, if any portion of the Special Dividend or any other dividend has yet to be declared and paid to the holders of Class E Preferred Stock, no dividends may be declared or paid or set apart for payment by AIMCO on its Common Stock. On the close of business on the day on which the Special Dividend (or any remaining unpaid portion thereof) is paid to the holders of the Class E Preferred Stock, each share of Class E Preferred Stock will be automatically converted into one share of Class A Common Stock without any action on the part of AIMCO or the holder of such share (the "Class E Conversion Date"). If AIMCO at any time following the Effective Time pays a dividend or makes a distribution, subdivides, combines, reclassifies, issues rights, options or warrants or makes any other distribution in securities in relation to its outstanding Class A Common Stock, then AIMCO will contemporaneously do the same with respect to the Class E Preferred Stock. CLASS G PREFERRED STOCK On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred Stock, in an underwritten public offering for net proceeds of approximately $98.0 million. The Class G Preferred Stock (a) ranks prior to the Common Stock, the Class E Preferred Stock and any other class or series of capital Stock of AIMCO, if the holders of the Class G Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class G Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class H Preferred Stock and with any other class or series of capital Stock of AIMCO, if the holders of such class of Stock or series and the Class G Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class G Parity Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class G Preferred Stock ("Class G Senior Stock"). Holders of Class G Preferred Stock are entitled to receive cash dividends at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to $2.34375 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing October 15, 1998. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class G Junior Stock, the holders of Class G Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class G Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class G Parity Stock, then such proceeds shall be distributed among the holders of Class G Preferred Stock and any such other Class G Parity Stock ratably in the same proportion as the respective amount that would be payable on 39 45 such Class G Preferred Stock and any such other Class G Parity Stock if all amounts payable thereon were paid in full. On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class G Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class G Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class G Preferred Stock have no voting rights, except that if distributions on Class G Preferred Stock or any series or class of Class G Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class G Preferred Stock (voting together as a single class with all other shares of Class G Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class G Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class G Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class G Preferred Stock, and to approve the issuance of any capital Stock that ranks senior to the Class G Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class G Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS H PREFERRED STOCK On August 11, 1998, AIMCO issued 2,000,000 shares of its Class H Preferred Stock, in an underwritten public offering for net proceeds of approximately $48.1 million. The Class H Preferred Stock (a) ranks prior to the Common Stock, the Class E Preferred Stock and any other class or series of capital Stock of AIMCO if the holders of the Class H Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class H Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class G Preferred Stock, and with any other class or series of capital Stock of AIMCO, if the holders of such class of Stock or series and the Class G Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class H Parity Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class H Preferred Stock ("Class H Senior Stock"). Holders of Class H Preferred Stock are entitled to receive cash dividends at the rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to $2.375 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing October 15, 1998. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class H Junior Stock, the holders of Class H Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class H Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class H Parity Stock, then such proceeds shall be distributed among the holders of Class H Preferred Stock and any such other Class H Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class H Preferred Stock and any such other Class H Parity Stock if all amounts payable thereon were paid in full. 40 46 On and after August 14, 2003, AIMCO may redeem shares of Class H Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class H Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class H Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class H Preferred Stock have no voting rights, except that if distributions on Class H Preferred Stock or any series or class of Class H Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class H Preferred Stock (voting together as a single class with all other shares of Class H Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class H Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class H Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class H Preferred Stock, and to approve the issuance of any capital Stock that ranks senior to the Class H Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class H Preferred Stock that are similar to those for the Class B Preferred Stock. DESCRIPTION OF COMMON STOCK GENERAL The Charter authorizes the issuance of up to 510,750,000 shares of capital Stock with a par value of $.01 per share, of which 486,027,500 shares were classified as Class A Common Stock and 262,500 shares were classified as Class B Common Stock as of October 1, 1998. As of October 1, 1998, there were 47,982,057 shares of Class A Common Stock issued and outstanding. In addition, up to 150,000 shares of Class A Common Stock have been reserved for issuance under AIMCO's 1994 Stock Option Plan, up to 500,000 shares of Class A Common Stock have been reserved for issuance under AIMCO's 1996 Stock Award and Incentive Plan, and up to 500,000 shares of Class A Common Stock have been reserved for issuance under AIMCO's Non-Qualified Stock Option Plan. Under AIMCO's 1997 Stock Award and Incentive Plan, AIMCO may issue up to 10% of the shares of Class A Common Stock outstanding as of the first day of the fiscal year during which any award is made, but in no event more than 20,000,000 shares of Class A Common Stock. The Class A Common Stock is traded on the NYSE under the symbol "AIV." BankBoston, N.A. serves as transfer agent and registrar of the Class A Common Stock. As of October 1, 1998, the Charter authorized 750,000 shares of Class B Preferred Stock, all of which were issued and outstanding; 2,760,000 shares of Class C Preferred Stock, of which 2,400,000 shares were issued and outstanding; 4,600,000 shares of Class D Preferred Stock, of which 4,200,000 shares were issued and outstanding; 10,000,000 shares of Class E Preferred Stock, of which up to 8,945,921 shares are expected to be issued as consideration for the Insignia merger; 4,050,000 shares of Class G Preferred Stock, all of which shares were issued and outstanding; and 2,300,000 shares of Class H Preferred Stock, of which 2,000,000 shares were issued and outstanding. In addition, the Charter authorizes 262,500 shares of Class B Common Stock, which number is subject to reduction by the number of shares of Class B Common Stock that have been converted into shares of Class A Common Stock. As of October 1, 1998, 162,500 shares of Class B Common Stock were issued and outstanding. See "-- Class B Common Stock." CLASS A COMMON STOCK Holders of the Class A Common Stock are entitled to receive dividends, when and as declared by the AIMCO Board, 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 the liquidation preferences of preferred stock. The shares of Class A Common Stock possess ordinary voting rights for the election of Directors and in respect of other 41 47 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 TRANSFER For AIMCO to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the 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 the AIMCO Board 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, the AIMCO Board has adopted, and the stockholders have approved, provisions of the Charter restricting the acquisition of shares of 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 Common Stock. For purposes of calculating the amount of stock owned by a given individual, the individual's Common Stock and Common OP Units are aggregated. The AIMCO Board of Directors may waive the Ownership Limit if evidence satisfactory to the AIMCO Board of Directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. However, in no event may such holder's direct or indirect ownership of Common Stock exceed 9.8% of the total outstanding shares of 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. The foregoing restrictions on transferability and ownership will not apply if the AIMCO Board of Directors determines that it is no longer in the best interests of AIMCO to attempt to qualify, or to continue to quality as a REIT and a resolution terminating AIMCO's status as a REIT and amending the Charter to remove the foregoing restrictions is duly adopted by the AIMCO Board of Directors and a majority of AIMCO's stockholders. If shares of Common Stock in excess of the Ownership Limit, or shares of Common Stock which would cause the REIT to be beneficially owned by fewer than 100 persons, or which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Internal Revenue Code, or which 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 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) 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 the AIMCO Board of Directors determines in good faith that a 42 48 violative transfer has occurred, whichever is later. All certificates representing shares of 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 Securities Exchange Act of 1934, more than a specified percentage of the outstanding shares of Common Stock must file a written statement or an affidavit with AIMCO containing the information specified in the 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 the AIMCO Board 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 the AIMCO Board of Directors determines that maintenance of REIT status is no longer in the best interests of AIMCO. CLASS B COMMON STOCK In connection with the initial formation of AIMCO, Terry Considine, Peter Kompaniez, Steven Ira and Robert P. Lacy (a former officer of AIMCO) acquired an aggregate of 650,000 shares of Class B Common Stock. The Charter, which initially authorized 750,000 shares of Class B Common Stock, was amended in June 1998 to authorize 262,500 shares of Class B Common Stock, of which 162,500 shares are issued and outstanding. The Class B Common Stock does not have voting or dividend rights and, unless converted into Class A Common Stock, as described below, is subject to repurchase by AIMCO as described below. As of December 31 of each of the years 1994 through 1998 (each, a "Year-End Testing Date"), a number of the shares of Class B Common Stock outstanding as of such date (the "Eligible Class B Shares") become eligible for automatic conversion (subject to the Ownership Limit) into an equal number of shares of Class A Common Stock (subject to adjustment upon the occurrence of certain events in respect of the Class A Common Stock, including stock dividends, subdivisions, combinations and reclassifications). Once Class B Common Stock has been converted into Class A Common Stock, holders of such shares of converted Class A Common Stock will have voting and dividend rights of Class A Common Stock generally. Once converted or forfeited, the Class B Common Stock may not be reissued by AIMCO. The Eligible Class B Shares convert to Class A Common Stock if (i) AIMCO's Funds from Operations Per Share (as defined below) reaches certain annual and cumulative growth targets and (ii) the average market price for a share of Class A Common Stock for a 90 calendar day period beginning on any day on or after the October 1 immediately preceding the relevant Year-End Testing Date equals or exceeds a specified target price. "Funds from Operations Per Share" or "FFO Per Share" means, for any period, (i) net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, less any preferred stock dividend payments, divided by (ii) the sum of (a) the number of shares of the Class A Common Stock outstanding on the last day of such period (excluding any shares of the Class A Common Stock into which shares of the Class B Common Stock shall have been converted as a result of the conversion of shares of the Class B Common Stock on the last day of such period) and (b) the number of shares of the Class A Common Stock issuable to acquire units of limited partnership that (x) may be tendered for redemption in any limited partnership in which AIMCO serves as general partner and (y) are outstanding on the last day of such period. 43 49 Set forth below for each of the remaining Year-End Testing Dates is (i) the number of shares of Class B Common Stock that become Eligible Class B Shares as of such date, (ii) the annual FFO Per Share growth target (as a percentage increase in FFO Per Share from the prior year), (iii) the cumulative FFO Per Share growth target (in FFO Per Share) and (iv) the average market price target:
ANNUAL FFO AVERAGE ELIGIBLE PER SHARE CUMULATIVE FFO MARKET CLASS B GROWTH PER SHARE PRICE YEAR-END TESTING DATE SHARES(1) TARGET GROWTH TARGET TARGET --------------------- --------- ---------- -------------- ------- December 31, 1998....................... 162,500 8.5% $2.760 $26.373
- --------------- (1) Assumes that only the shares of Class B Common Stock outstanding as of December 31, 1997 remain outstanding until converted into shares of Class A Common Stock. If the annual growth target is not met for a particular Year-End Testing Date, the Eligible Class B Shares for that date may be converted as of a subsequent Year-End Testing Date if all of the targets are met for that subsequent Year-End Testing Date. Any Class B Common Stock that has not been converted into Class A Common Stock following December 31, 1998 will be subject to repurchase by AIMCO at a price of $0.10 per share. Class B Common Stock is also subject to automatic conversion upon the occurrence of certain events, including a change of control (as defined in the Charter). The AIMCO Board may increase the number of shares which are eligible for conversion as of any Year-End Testing Date and may, under certain circumstances, accelerate the conversion of outstanding Class B Common Stock at such time and in such amount as it may determine appropriate. All of the 65,000 shares of Class B Common Stock eligible for conversion as of the December 31, 1994 Year-End Testing Date, all of the 130,000 shares of Class B Common Stock eligible for conversion as of the December 31, 1995 Year-End Testing Date, all of the 130,000 shares of Class B Common Stock eligible for conversion as of December 31, 1996 and all of the 162,500 shares of Class B Common Stock eligible for conversion as of December 31, 1997, have been converted into shares of Class A Common Stock. As of December 31, 1997, the outstanding Class B Common Stock was held as follows: 93,428 shares by Mr. Considine, 41,438 shares by Mr. Kompaniez, 13,821 shares by Mr. Ira and 13,813 shares by Mr. Lacy. BUSINESS COMBINATIONS Under the MGCL, 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 of the corporation who, at any time within the two-year period 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 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 (a) 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 (b) 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 of the Interested Stockholder with whom the business combination is to be effected, unless, among other conditions, the corporation's stockholders receive a minimum price (as defined in the MGCL) 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, ownership of Common OP Units will be treated as beneficial ownership of the shares of Common Stock for which the Common OP Units may be redeemed. 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 the MGCL 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 has not passed such a resolution. 44 50 CONTROL SHARE ACQUISITIONS The MGCL 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: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority or (iii) 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. 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 the Charter or in AIMCO's bylaws (the "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. DESCRIPTION OF OP UNITS The following description sets forth certain general terms and provisions of the OP Units and the AIMCO Operating Partnership Agreement. The AIMCO Operating Partnership Agreement is included as Appendix B hereto, and this description is qualified in its entirety by the terms thereof. GENERAL The AIMCO Operating Partnership is a limited partnership organized pursuant to 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 the AIMCO Operating Partnership Agreement. AIMCO GP, 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, 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 until December 31, 2093, unless the AIMCO Operating Partnership is dissolved sooner pursuant to the provisions of the AIMCO Operating Partnership Agreement or as otherwise provided by law. 45 51 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 the AIMCO GP, at all times to be classified as a REIT. MANAGEMENT BY THE AIMCO GP Except as otherwise expressly provided in the AIMCO Operating Partnership Agreement, all management powers over the business and affairs of the AIMCO Operating Partnership are exclusively vested in the AIMCO GP. None of the limited partners of the AIMCO Operating Partnership or any other person to whom one or more OP Units have been transferred (each, an "Assignee") will 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 AIMCO GP may not be removed by the partners with or without cause, except with the consent of the AIMCO GP. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the AIMCO GP under any other provision of the AIMCO Operating Partnership Agreement, the AIMCO GP, 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 (including, without limitation, in connection with any acquisition of properties) upon such terms as the AIMCO GP determines to be appropriate. The AIMCO GP 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 partners. Restrictions on AIMCO GP's Authority. The AIMCO GP may not take any action in contravention of the AIMCO Operating Partnership Agreement. The AIMCO GP 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 AIMCO Operating Partnership Agreement, amend, modify or terminate the AIMCO Operating 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 certain exceptions, approve or acquiesce to the transfer of the AIMCO Operating Partnership interest of the AIMCO GP, or admit into the AIMCO Operating Partnership any additional or successor general partners of the AIMCO Operating Partnership. Issuance of Additional OP Limited Partnership Interests. The AIMCO GP 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 the 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 AIMCO GP is expressly authorized to cause the AIMCO Operating Partnership to issue additional interests (i) upon the conversion, redemption or exchange of any debt, OP Units or other securities issued by the AIMCO Operating 46 52 Partnership, (ii) for less than fair market value, so long as the AIMCO GP concludes in good faith that such issuance is in the best interests of the 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 the AIMCO GP, in its sole and absolute discretion without the approval of any limited partners, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement. Without limiting the generality of the foregoing, the AIMCO GP shall have 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 by the AIMCO Operating Partnership; (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. 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 are Preferred OP Units. No person will be admitted as an additional limited partner without the consent of the AIMCO GP, which consent may be given or withheld in the AIMCO GP's sole and absolute discretion. MANAGEMENT LIABILITY AND INDEMNIFICATION Notwithstanding anything to the contrary set forth in the AIMCO Operating Partnership Agreement, the AIMCO GP 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 AIMCO GP 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 partner of the AIMCO Operating Partnership), the AIMCO GP, any officer or director of AIMCO GP or the AIMCO Operating Partnership and such other persons as the AIMCO GP 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 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. COMPENSATION AND FEES The AIMCO GP does not receive compensation for its services as general partner of the AIMCO Operating Partnership. However, the AIMCO GP 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 AIMCO GP for such expenses paid by the AIMCO GP. The employees of the AIMCO Operating Partnership receive compensation for their services. FIDUCIARY RESPONSIBILITIES The directors and officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the AIMCO GP. At the same time, the AIMCO GP, as general partner, has fiduciary duties to manage the AIMCO Operating Partnership in a manner beneficial 47 53 to the AIMCO Operating Partnership and its partners. The duties of the AIMCO GP, as general partner, to the AIMCO Operating Partnership and its partners, therefore, may come into conflict with the duties of the directors and officers of the AIMCO GP to its sole stockholder, AIMCO. 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 AIMCO GP 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 the AIMCO GP, on such terms as the AIMCO GP, in its sole and absolute discretion, believes are advisable. The latitude given in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving conflicts of interest may significantly limit the ability of a limited partner to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP 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 AIMCO Operating Partnership Agreement expressly limits the liability of the AIMCO GP by providing that the AIMCO GP, 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 AIMCO GP or such director or officer acted in good faith. In addition, the AIMCO Operating Partnership is required to indemnify the AIMCO GP, 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 AIMCO GP 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 AIMCO Operating 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 AIMCO GP has not obtained an opinion of counsel covering the provisions set forth in the AIMCO Operating Partnership Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP that would be in effect under common law were it not for the AIMCO Operating Partnership Agreement. See "Risk Factors -- Risks Associated With an Investment in OP Units -- Conflicts of Interest and Fiduciary Responsibility." CLASS B PARTNERSHIP PREFERRED UNITS On August 4, 1997, in connection with AIMCO's issuance of 750,000 shares of Class B Preferred Stock, the AIMCO Operating Partnership issued 750,000 Class B Partnership Preferred Units to the Special Limited Partner. The terms of the Class B Partnership Preferred Units are substantially the same as the terms of the Class B Preferred Stock. The Class B Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $1.78125 per unit or, if greater, the distributions then payable on Common OP Units into which such Class B Partnership Preferred Units are convertible. On or after August 4, 1998, upon the conversion of Class B Preferred Stock into Class A Common Stock, a number of Class B Partnership Preferred Units equal to the number of shares of Class B Preferred Stock so converted will be converted into Common OP Units. The number of Common OP Units issued upon conversion of Class B Partnership Preferred Units is determined by dividing the Class B Partnership Preferred Unit's liquidation preference of $100 per unit by $30.45. In addition, each Class B Partnership Preferred Unit has a priority in liquidation equal to $100 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class B Preferred Stock. 48 54 CLASS C PARTNERSHIP PREFERRED UNITS On December 23, 1997, in connection with AIMCO's issuance of 2,400,000 shares of Class C Preferred Stock, the AIMCO Operating Partnership issued 2,400,000 Class C Partnership Preferred Units to the Special Limited Partner. The terms of the Class C Partnership Preferred Units are substantially the same as the terms of the Class C Preferred Stock. The Class C Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.5625 per unit ($2.25 per annum). In addition, each Class C Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class C Preferred Stock. CLASS D PARTNERSHIP PREFERRED UNITS On February 19, 1998, in connection with AIMCO's issuance of 4,200,000 shares of Class D Preferred Stock, the AIMCO Operating Partnership issued 4,200,000 Class D Partnership Preferred Units to the Special Limited Partner. The terms of the Class D Partnership Preferred Units are substantially the same as the terms of the Class D Preferred Stock. The Class D Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.546875 ($2.1875 per annum). In addition, each Class D Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class D Preferred Stock. CLASS E PARTNERSHIP PREFERRED UNITS In connection with the Insignia Merger, AIMCO will issue up to 8,945,921 shares of Class E Preferred Stock. AIMCO will contribute assets formerly held by Insignia to the AIMCO Operating Partnership in exchange for Class E Partnership Preferred Units issued to the Special Limited Partner. The terms of the Class E Partnership Preferred Units are substantially the same as the terms of the Class E Preferred Stock. The Class E Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly distributions equal (on a per unit basis) to the dividends paid on the AIMCO Class A Common Stock (on a per share basis), and a special distribution of $50 million in the aggregate. Upon payment of the special distribution, the Class E Partnership Preferred Units automatically convert into an equal number of Common OP Units. Each Class E Partnership Preferred Unit has a priority in liquidation equal to $1.00 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class E Preferred Stock. CLASS F PARTNERSHIP PREFERRED UNITS In connection with the Insignia Merger, AIMCO has assumed Insignia's obligations under its 6 1/2% Convertible Subordinated Debentures due 2016 (the "Convertible Debentures"), and the AIMCO Operating Partnership has issued Class F Partnership Preferred Units to the Special Limited Partner that are economically equivalent to the Convertible Debentures. The Convertible Debentures bear interest at the rate of 6 1/2% per annum and are convertible into shares of AIMCO Class E Preferred Stock at a price of $57.21. After the conversion of Class E Preferred Stock into Class A Common Stock, the Convertible Debentures will be convertible into shares of Class A Common Stock at a conversion price that is adjusted for the $50 million dividend paid on the Class E Preferred Stock. The Class F Partnership Preferred Units have a liquidation value of $50 per Class F Partnership Preferred Unit, plus an amount per Class F Partnership Unit equal to all accrued and unpaid interest on Convertible Debentures in a principal amount of $50 to the date of final distribution to holders of Class F Partnership Preferred Units (but such holders would not be entitled to any further payment). Holders of Class F Partnership Preferred Units are entitled to receive, on any date on which payments of interest or principal are made on Convertible Debentures, distributions payable in cash in an amount per Class F Partnership Preferred Unit equal to the interest and principal payment made in respect of Convertible Debentures in a principal amount of $50 on such distribution date. Class F Partnership Preferred Units are redeemable by the AIMCO Operating Partnership at any time that AIMCO redeems all or any of the Convertible Debentures, in number equal to the quotient obtained by dividing the aggregate principal amount of Convertible Debentures so redeemed by $50, at a price per Class F Partnership Preferred Unit equal to the price paid by AIMCO to redeem Convertible Debentures in a principal amount of $50. Upon any conversion of Convertible Debentures into shares of AIMCO Class E Preferred Stock or Class A Common 49 55 Stock, a number of Class F Partnership Preferred Units equal to the quotient obtained by dividing the aggregate principal amount of Convertible Debentures so converted by $50 will be converted into Class E Partnership Preferred Units or Partnership Common Units, respectively. The conversion ratio in effect from time to time for such conversion of Class F Partnership Preferred Units into Class E Partnership Preferred Units or Partnership Common Units will be equal to, and automatically adjusted to reflect, the conversion ratio in effect from time to time for the conversion of Convertible Debentures in a principal amount equal to $50 into shares of AIMCO's Class E Preferred Stock or Class A Common Stock, as the case may be. The Class F Partnership Preferred Units may be owned and held solely by AIMCO GP or the Special Limited Partner. CLASS G PARTNERSHIP PREFERRED UNITS On July 15, 1998, in connection with AIMCO's issuance of 4,050,000 shares of Class G Preferred Stock, the AIMCO Operating Partnership issued 4,050,000 Class G Partnership Preferred Units to the Special Limited Partner. The terms of the Class G Partnership Preferred Units are substantially the same as the terms of the Class G Preferred Stock. The Class G Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.5859375 ($2.34375 per annum). In addition, each Class G Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class G Preferred Stock. CLASS H PARTNERSHIP PREFERRED UNITS On August 11, 1998, in connection with AIMCO's issuance of 2,000,000 shares of Class H Preferred Stock, the AIMCO Operating Partnership issued 2,000,000 Class H Partnership Preferred Units to the Special Limited Partner. The terms of the Class H Partnership Preferred Units are substantially the same as the terms of the Class H Preferred Stock. The Class H Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.59375 ($2.375 per annum). In addition, each Class H Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class H Preferred Stock. HIGH PERFORMANCE UNITS In January 1998, the AIMCO Operating Partnership sold an aggregate of 15,000 High Performance Units to a joint venture formed by fourteen of AIMCO's officers and to three of AIMCO's independent directors, Messrs. Martin, Rhodes and Smith. Holders of High Performance Units have no rights to receive distributions or allocations of income or loss, or to redeem their High Performance Units prior to the Valuation Date that is the earlier of (i) January 1, 2001, or (ii) the date on which a change of control (as defined in the AIMCO Operating Partnership Agreement) occurs. If, on the Valuation Date, the cumulative Total Return of the Class A Common Stock during the Measurement Period exceeds the Minimum Return, then, on and after the Valuation Date, holders of the 15,000 High Performance Units will be entitled to receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times (subject to certain exceptions upon liquidation of the AIMCO Operating Partnership) as would holders of a number of Common OP Units equal to the quotient obtained by dividing (i) the product of (A) 15% of the amount by which the cumulative Total Return of the Class A Common Stock over the Measurement Period exceeds the greater of 115% of the peer group index or the Minimum Return, multiplied by (B) the weighted average market value of AIMCO's equity capitalization (including Class A Common Stock and Common OP Units) by (ii) the market value of one share of Class A Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative Total Return of the Class A Common Stock does not satisfy these criteria, then, on and after the Valuation Date, holders of the 15,000 High Performance Units will be entitled to receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times (subject to certain exceptions upon a liquidation of the AIMCO Operating Partnership) as would holders of 150 Common OP Units. For purposes of determining the market value of Class A Common Stock or Common OP Units as of any date, the average closing price of the Class A Common Stock for the 20 trading days immediately preceding such date 50 56 is used. It is expected that the Morgan Stanley REIT Index, a capitalization-weighted index with dividends reinvested of the most actively traded REITs, will be used as the peer group index for purposes of the High Performance Units. Upon the occurrence of a change of control, any holder of High Performance Units may, subject to certain restrictions, require the AIMCO Operating Partnership to redeem all or a portion of the High Performance Units held by such party in exchange for (i) a cash payment per unit equal to the estimated proceeds that a holder of one unit would be entitled to receive in the event of a liquidation of the AIMCO Operating Partnership, or (ii) a number of shares of Class A Common Stock with a value equal to such cash payment. The AIMCO Operating Partnership may elect, in its sole discretion, to pay cash or direct AIMCO to issue shares to satisfy any such redemption. DISTRIBUTIONS Preferred OP Units. Holders of Preferred OP Units to be issued hereunder will have rights to distributions as set forth in the Prospectus Supplement. With respect to rights of holders of Class B Partnership Preferred Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units, Class E Partnership Preferred Units, Class F Partnership Preferred Units, Class G Partnership Preferred Units and Class H Partnership Preferred Units, see "-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units; - -- Class D Partnership Preferred Units; -- Class E Partnership Preferred Units; - -- Class F Partnership Preferred Units; -- Class G Partnership Preferred Units; and -- Class H Partnership Preferred Units." High Performance Units. On and after the Valuation Date, holders of High Performance Units may be entitled to receive distributions in accordance with the terms of the High Performance Units. See "-- High Performance Units." Common OP Units. Subject to the rights of holders of any outstanding Preferred OP Units, the AIMCO Operating Partnership Agreement requires the AIMCO GP to cause the AIMCO Operating Partnership to distribute quarterly all, or such portion as the AIMCO GP 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 AIMCO GP, the Special Limited Partner and the holders of Common OP Units ("Common OP Unitholders") on the record date established by the 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 the AIMCO GP, the Special Limited Partner 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 AIMCO GP 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 AIMCO GP 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 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 Treasury Regulations and (ii) avoid any federal income or excise tax liability of AIMCO. No Common OP Unitholder has any right to demand or receive property other than cash as provided in the AIMCO Operating Partnership Agreement. The AIMCO GP may determine, in its sole and absolute discretion, to make a distribution in kind of assets of the AIMCO Operating Partnership to the 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 AIMCO Operating Partnership Agreement. 51 57 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 OP Unitholders in accordance with the AIMCO Operating Partnership Agreement. The AIMCO Operating Partnership Agreement prohibits the AIMCO Operating Partnership and the AIMCO GP, on behalf of the AIMCO Operating Partnership, from making a distribution to any OP Unitholder on account of its interest in 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 Preferred OP Units. With respect to the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class E Partnership Preferred Units, the Class F Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units and any similar class of Preferred OP Unit that may be subsequently issued, gross income and, if necessary, gain will be allocated to the holders of the Preferred OP Units for any fiscal year (and, if necessary, subsequent fiscal years) to the extent that the holders of the Preferred OP Units receive a distribution on any Preferred OP Units (other than an amount included in any redemption of Preferred OP Units). If any Preferred OP Units are redeemed, for the fiscal year that includes such redemption (and, if necessary, for subsequent fiscal years) (i) gross income and gain (in such relative proportions as the AIMCO GP in its discretion will determine) will be allocated to the holders of such class of Preferred OP Units to the extent that the redemption amounts paid or payable with respect to the Preferred OP Units so redeemed exceeds the aggregate capital contributions (net of liabilities assumed or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit allocable to the Preferred OP Units so redeemed and (ii) deductions and losses (in such relative proportions as the AIMCO GP in its discretion will determine) will be allocated to the holders of such class of Preferred OP Units to the extent that the aggregate Capital Contributions (net of liabilities assumed or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit allocable to the Preferred OP Units so redeemed exceeds the redemption amount paid or payable with respect to the Preferred OP Units so redeemed. High Performance Units. On and after the Valuation Date, holders of High Performance Units may be allocated income and loss in accordance with the terms of the High Performance Units. See "-- High Performance Units." Common OP Units. Net Income (as defined in the AIMCO Operating Partnership Agreement) and Net Loss (as defined in the AIMCO Operating 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 AIMCO Operating 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 AIMCO Operating Partnership Agreement and subject to the terms of any outstanding Partnership Preferred 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 AIMCO Operating 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 AIMCO Operating Partnership Agreement and subject to the terms of any outstanding Preferred OP Units, for 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 Common OP Unitholders in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to the AIMCO Operating Partnership Agreement. 52 58 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 federal, state, local or foreign taxes that the 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 pursuant to the AIMCO Operating Partnership Agreement. RETURN OF CAPITAL No limited partner is entitled to interest on its capital contribution or on such limited partner's capital account. Except (i) pursuant to the rights of redemption set forth in the AIMCO Operating Partnership Agreement, (ii) as provided by law, or (iii) pursuant to the terms of any outstanding Preferred OP Units, no limited 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 pursuant to the AIMCO Operating Partnership Agreement or upon termination of the AIMCO Operating Partnership. Except to the extent otherwise expressly provided in the AIMCO Operating 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 Preferred OP Units. Holders of Preferred OP Units to be issued hereunder will have rights to redemption as set forth in the applicable Prospectus Supplement. With respect to rights of holders of Class B Partnership Preferred Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units, Class E Partnership Preferred Units, Class F Partnership Preferred Units, Class G Partnership Preferred Units and Class H Partnership Preferred Units, see "-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units; - -- Class D Partnership Preferred Units; -- Class E Partnership Preferred Units; - -- Class F Partnership Preferred Units; and -- Class H Partnership Preferred Units." High Performance Units. In the event of a change of control, holders of High Performance Units will have redemption rights similar to those of holders of Common OP Units. See "-- High Performance Units." Common OP Units. After the first anniversary of becoming a holder of Common OP Units, each Common OP Unitholder and certain assignees have the right, subject to the terms and conditions set forth in 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, on a one-for-one basis, or a cash amount equal to the value of such shares. On or before the close of business on the fifth business day after the AIMCO GP receives a notice of redemption, the AIMCO Operating Partnership may, in its sole and absolute discretion but subject to the restrictions on the ownership of Class A Common Stock imposed under the AIMCO 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 adjustment as provided in the AIMCO Operating Partnership Agreement. PARTNERSHIP RIGHT TO CALL COMMON OP UNITS Notwithstanding any other provision of the AIMCO Operating Partnership Agreement, on and after the date on which the aggregate percentage interests of the limited partners, other than the Special Limited Partner, 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 the Special Limited Partner's interest) in the AIMCO Operating Partnership by treating any 53 59 limited partner as if such limited partner had tendered for redemption pursuant to the AIMCO Operating Partnership Agreement the amount of Common OP Units specified by the AIMCO GP, in its sole and absolute discretion, by notice to the limited partner. TRANSFERS AND WITHDRAWALS Restrictions on Transfer. The AIMCO Operating Partnership Agreement restricts the transferability of OP Units. Any transfer or purported transfer of an OP Unit not made in accordance with the AIMCO Operating Partnership Agreement will be null and void ab initio. Until the expiration of one year from the date on which a limited partner acquired OP Units, subject to certain exceptions, such limited partner may not transfer all or any portion of its OP Units to any transferee without the consent of the 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 limited partner acquired OP Units, such limited partner has the right to transfer all or any portion of its OP Units to any person, subject to the satisfaction of certain conditions specified in the AIMCO Operating Partnership Agreement, including the AIMCO GP's right of first refusal. It is a condition to any transfer (regardless of whether 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 AIMCO Operating Partnership Agreement with respect to such OP Units, and no such transfer (other than pursuant to 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 AIMCO Operating Partnership Agreement without the approval of the AIMCO GP, in its sole and absolute discretion. In connection with any transfer of OP Units, the 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 federal or state securities laws or regulations applicable to the AIMCO Operating Partnership or the OP Units transferred. No transfer by a limited partner of its OP Units (including any redemption or any acquisition of OP Units by the 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 Section 7704 of the Internal Revenue Code. 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 the AIMCO GP, which consent may be given or withheld by the AIMCO GP in its sole and absolute discretion. If the 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 AIMCO Operating 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 OP Units assigned to such transferee and the rights to transfer the OP Units provided in the AIMCO Operating Partnership Agreement, but will not be deemed to be a limited partner for any other purpose under the AIMCO Operating Partnership Agreement, and will not be entitled to effect a consent or vote with respect to such OP Units on any matter presented to the limited partners for approval (such right to consent or vote, to the extent provided in this 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 OP Units in accordance with the AIMCO Operating Partnership Agreement, with respect to which the transferee becomes a substituted limited partner, or pursuant to a redemption (or acquisition by AIMCO) of all of such limited partner's OP Units. 54 60 Restrictions on the General Partner. The AIMCO GP 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 the 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 the AIMCO GP, are contributed to the AIMCO Operating Partnership as a capital contribution in exchange for OP Units. ISSUANCE OF CAPITAL STOCK BY AIMCO Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of its capital stock, AIMCO is generally obligated to contribute the cash proceeds or other consideration received from such issuance to the AIMCO Operating Partnership in exchange for, in the case of Class A Common Stock, Common OP Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Stock. DILUTION The AIMCO GP has the power, without the consent of the limited partners, to cause the AIMCO Operating Partnership to issue additional Common OP Units and Preferred OP Units. Any such issuance may dilute the interests of existing OP Unitholders. In addition, the terms of the Preferred OP Units entitle the holders thereof to receive preferential distributions of cash and a priority in liquidation, as well as certain class voting rights. AMENDMENT OF THE AIMCO OPERATING PARTNERSHIP AGREEMENT By the AIMCO GP Without the Consent of the Limited Partners. The AIMCO GP has the power, without the consent of the limited partners, to amend the AIMCO Operating Partnership Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the AIMCO GP or surrender any right or power granted to the AIMCO GP or any affiliate of the 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 AIMCO Operating 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 AIMCO Operating Partnership Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under the AIMCO Operating Partnership Agreement that will not be inconsistent with law or with the provisions of the AIMCO Operating Partnership Agreement; (4) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in 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 AIMCO Operating Partnership Agreement or contemplated by the Internal Revenue Code or the Treasury Regulations). With the Consent of the Limited Partners. With the exception of the circumstances described above whereby the AIMCO GP may, without the consent of the limited partners, amendments to the AIMCO Operating Partnership Agreement require the limited partners' consent. Amendments to the AIMCO Operating Partnership Agreement may be proposed by the AIMCO GP or by limited partners holding a majority of the outstanding Common OP Units, excluding the Special Limited Partner (a "Majority in Interest"). Following such proposal, the AIMCO GP will submit any proposed amendment to the limited partners. The AIMCO GP will seek the written consent of the limited partners on the proposed amendment or will call a meeting to vote thereon and to transact any other business that the AIMCO GP may deem appropriate. For purposes of obtaining a written consent, the AIMCO GP may require a written response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a consent that is consistent with the AIMCO GP's recommendation with respect to the 55 61 proposal, provided, however, that an action shall become effective at such time as requisite consents are received even if prior to such specified time. PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS Meetings of the partners may be called by the AIMCO GP and will be called upon the receipt by the 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 the AIMCO GP or such other person as the AIMCO GP may appoint pursuant to such rules for the conduct of the meeting as the AIMCO GP or such other person deems appropriate in its sole and absolute discretion. 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 AIMCO Operating Partnership Agreement for the action in question). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of the partners holding a majority of outstanding Common OP Units (or such other percentage as is expressly required by the AIMCO Operating Partnership Agreement for the action in question). Such consent shall be filed with the AIMCO GP. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. RECORDS AND ACCOUNTING; FISCAL YEAR The AIMCO Operating Partnership Agreement requires the 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 the 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 the AIMCO GP determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the AIMCO Operating Partnership, the 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 five (105) days after the close of each calendar quarter and each fiscal year, the 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 the 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 the AIMCO GP. TAX MATTERS The AIMCO GP is the "tax matters partner" of the AIMCO Operating Partnership for 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, the AIMCO GP will arrange for the preparation and timely filing of all returns with respect to the AIMCO Operating Partnership's income, gains, deductions, losses and other items required of the AIMCO Operating Partnership for 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 federal and state income tax reporting 56 62 purposes. The limited partners will promptly provide the AIMCO GP with such information as may be reasonably requested by the AIMCO GP from time to time. 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 the general partner 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 pursuant to the provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or (vi) the redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special Limited Partner) of all Common OP Units other than Common OP Units held by the AIMCO GP or the Special Limited Partner. 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 AIMCO GP (or, in the event that there is no remaining AIMCO GP or the 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's 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 the AIMCO GP, include Class A Common 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 the general partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under the AIMCO Operating 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 the 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. 57 63 COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO Generally, the nature of an investment in the Common OP Units is substantially equivalent economically to an investment in the Class A Common Stock. 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. Common OP Unitholders generally share in the risks and rewards of ownership in the enterprise being conducted by AIMCO (through the AIMCO Operating Partnership). However, there are some differences between ownership of Common OP Units and ownership of Class A Common Stock, some of which may be material to investors. The information below highlights a number of the significant differences between the AIMCO Operating Partnership and AIMCO relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, investor rights and federal income taxation, and compares certain legal rights associated with the ownership of Common OP Units and Class A Common Stock, respectively. These comparisons are intended to assist OP Unitholders in understanding how their investment will be changed if their Common OP Units are exchanged for Class A Common Stock. COMMON OP UNITHOLDERS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE REGISTRATION STATEMENT AND THE EXHIBITS THERETO OF WHICH THIS PROSPECTUS IS A PART AND ANY APPLICABLE PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY. AIMCO OPERATING PARTNERSHIP AIMCO Form of Organization and Assets Owned The AIMCO Operating Partnership is organized as a AIMCO is a Maryland corporation. AIMCO has elected to Delaware limited partnership. The AIMCO Operating be taxed as a REIT under the Internal Revenue Code, Partnership owns interests (either directly or through commencing with its taxable year ended December 31, subsidiaries) in the apartment properties. 1994, and intends to maintain its election as a REIT. With certain limited exceptions, AIMCO's only significant assets are its equity interests in the AIMCO GP and the Special Limited Partner, which in turn collectively hold a controlling interest in the AIMCO Operating Partnership.
Duration of Existence The term of the AIMCO Operating Partnership continues AIMCO has a perpetual existence, unless liquidated or until December 31, 2093, unless the AIMCO Operating dissolved. Partnership is dissolved sooner pursuant to the terms of the AIMCO Operating Partnership Agreement or as provided by law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up."
Purpose and Permitted Activities/Investments The purpose of the AIMCO Operating Partnership is to Under its Charter, AIMCO may engage in any lawful conduct any business that may be lawfully conducted by activity permitted to be engaged in by a Maryland a limited partnership organized pursuant to the corporation pursuant to Maryland law. The Charter Delaware LP Act, provided that such business is to be prohibits the AIMCO Board of Directors from taking any conducted in a manner that permits AIMCO to be action to terminate AIMCO's status as a REIT, unless qualified as a REIT, unless AIMCO ceases to qualify as the AIMCO Board of Directors recommends such action and a REIT. The AIMCO Operating Partnership is authorized the holders of a majority of the shares entitled to to perform any and all acts for the furtherance of the vote on such matter approve such action. The Internal purposes and business of the AIMCO Operating Revenue Code defines a REIT as a corporation, trust or Partnership, provided that the AIMCO Operating association (1) that is managed by one or more trustees Partnership may not take, or refrain from taking, any or directors; (2) the beneficial ownership of which is action which, in the judgment of the AIMCO GP could (i) evidenced by transferable shares, or by transferable adversely affect the ability of AIMCO to continue to certificates of beneficial interest; (3) which would be qualify as a REIT, (ii) subject AIMCO to certain income taxable as a domestic corporation, but for the special and excise taxes, or (iii) violate any law or Internal Revenue Code provisions applicable to REITs; regulation of any governmental body or agency (unless (4) that is neither a financial institution nor an such action, or inaction, is specifically consented to insurance company subject to certain provisions of the by AIMCO). Subject to the foregoing, Internal Revenue Code; (5) the beneficial
58 64 AIMCO OPERATING PARTNERSHIP AIMCO the AIMCO Operating Partnership may invest in or enter ownership of which is held by 100 or more persons; (6) into partnerships, joint ventures, or similar in which, during the last half of each taxable year, arrangements 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 (7) which meets certain other tests described in this Prospectus (including with respect to the nature of its income and assets). See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." The Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) 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. The Charter also contains certain restrictions regarding transfers of its shares, which provisions are intended to assist AIMCO in satisfying the share ownership requirements described in conditions (5) and (6) above. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." Substantially all of the operations of AIMCO are conducted through the AIMCO Operating Partnership and its subsidiaries. Through its controlling interests in the AIMCO Operating Partnership and other limited partnerships and limited liability companies, AIMCO owns and controls interests in numerous multi-family rental apartment properties.
Additional Equity The AIMCO GP is authorized to issue additional Under the Charter, the AIMCO Board of Directors has the partnership interests in the AIMCO Operating authority to classify and reclassify any of its Partnership for any partnership purpose from time to unissued capital stock into shares of Preferred Stock time to the limited partners and to other persons, and by setting or changing in any one or more respects the to admit such other persons as additional limited preferences, conversion or other rights, voting powers, partners, on terms and conditions and for such capital restrictions, limitations as to dividends, contributions as may be established by the AIMCO GP in qualifications or terms or conditions of redemption of its sole discretion. The net capital contribution need such shares of capital stock including, but not limited not be equal for all partners. No action or consent by to, ownership restrictions consistent with the the limited partners is required in connection with the Ownership Limit with respect to each series or class of admission of any additional limited partner. See capital stock, and the number of shares constituting "Description of OP Units -- Management by the AIMCO each series or class, and to increase or decrease the GP." Subject to Delaware law, any additional partner- number of shares of any such series or class, to the ship interests may be issued in one or more classes, or extent permitted by the MGCL. AIMCO is authorized to one or more series of any of such classes, with such issue, in its discretion, additional equity securities designations, preferences and relative, participating, including Class A Common Stock or Preferred Stock; optional or other special rights, powers and duties as provided, however, that the total number of equity shall be determined by the AIMCO GP, in its sole and securities outstanding may not exceed the total number absolute discretion without the approval of any limited of authorized shares set forth in the Charter (i.e., partner, and set forth in a written document thereafter not more than 510,750,000 shares of capital stock). attached to and made an exhibit to the AIMCO Operating Additionally, AIMCO may issue additional Class A Common Partnership Agreement. Stock upon exchange of Common OP Units for Class A Common Stock, and upon exercise of options granted pursuant to AIMCO's stock incentive plan. Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of its capital stock, AIMCO is generally obligated to contribute the cash proceeds or other consideration received from such issuance to the AIMCO Operating Partnership in exchange for, in the case of Class A Common Stock, Common OP Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Stock. See "Description of OP Units -- Issuance of Class A Common Stock by AIMCO." Neither AIMCO's Charter nor its By-Laws impose any restrictions upon dealings between AIMCO and its directors, officers and affiliates. Under Maryland law, however, material facts of the
59 65 AIMCO OPERATING PARTNERSHIP AIMCO relationship, the transaction and the conflict of interest must (i) be disclosed to the Board of Directors and approved by the affirmative vote of a majority of the disinterested directors; or (ii) be disclosed to the stockholders and approved by the affirmative vote of a majority of the disinterested stockholders or (iii) be in fact fair and reasonable. In addition, AIMCO has adopted certain policies designed to minimize or eliminate conflicts of interests between AIMCO and its executive officers and directors. Without the approval of a majority of the disinterested directors, AIMCO will not (i) acquire from or sell to any director, officer or employee of AIMCO or any entity in which a director, officer or employee of AIMCO owns more than a 1% interest, or acquire from or sell to any affiliate of any of the foregoing, any assets or other property of AIMCO, (ii) make any loan to or borrow from any of the foregoing persons, or (iii) engage in any material transaction with the foregoing. In addition, AIMCO has entered into employment agreements with certain officers and directors which include provisions intended to eliminate or minimize potential conflicts of interest. See "Business of the Company -- Policies of the Company with Respect to Certain Other Activities."
Borrowing Policies The AIMCO Operating Partnership Agreement contains no AIMCO is not restricted under its Charter or Bylaws restrictions on borrowings, and the AIMCO GP has full from incurring borrowings. power and authority to borrow money on behalf of the AIMCO Operating Partnership.
Review of Investor Lists Each limited partner has the right, upon written demand Under Maryland law, a stockholder holding at least 5% with a statement of the purpose of such demand and at of the outstanding stock of a corporation may, upon such limited partner's own expense, to obtain a current written request, inspect and copy during usual business list of the name and last known business, residence or hours the list of the stockholders of such corporation. mailing address of the AIMCO GP and each other partner.
Management Control All management powers over the business and affairs of The AIMCO Board of Directors has exclusive control over the AIMCO Operating Partnership are vested in the AIMCO AIMCO's business and affairs subject only to the GP. No limited partner has any right to participate in restrictions in the Charter and the Bylaws. The or exercise control or management power over the policies adopted by the AIMCO Board of Directors may be business and affairs of the AIMCO Operating altered or eliminated without a vote of AIMCO's Partnership. The limited partners have the right to stockholders. Accordingly, except for their vote in the vote on certain matters described under "Voting Rights" election of directors, holders of Class A Common Stock below. The AIMCO GP may not be removed by the limited have no control over the ordinary business policies of partners with or without cause. AIMCO.
Management Liability and Indemnification Notwithstanding anything to the contrary set forth in The Charter limits the liability of AIMCO's directors the AIMCO Operating Partnership Agreement, the AIMCO GP and officers to AIMCO and its stockholders to the is not liable to the AIMCO Operating Partnership for fullest extent permitted from time to time by Maryland losses sustained, liabilities incurred or benefits not law. Maryland law presently permits the liability of derived as a result of errors in judgment or mistakes directors and officers to a corporation or its of fact or law of any act or omission if the AIMCO GP stockholders for money damages to be limited, except acted in good faith. The AIMCO Operating Partnership (i) to the extent that it is proved that the director Agreement provides for indemnification of AIMCO, or any or officer actually received an improper benefit or director or officer of AIMCO (in its capacity as the profit in money, property or services actually previous general partner of the AIMCO Operating received, or (ii) if a judgment or other final Partnership), the AIMCO GP, any officer or director of adjudication is entered in a proceeding based on a AIMCO GP or the AIMCO Operating Partnership and such finding that the director's or officer's action, or other persons as the AIMCO GP may designate from and failure to act, was the result of active and deliberate against all losses, claims, damages, liabilities, joint dishonesty and was material to the cause of action or several, expenses (including legal adjudicated in the proceeding. This provision does not limit the ability of AIMCO or its stockholders to obtain other relief, such
60 66 AIMCO OPERATING PARTNERSHIP AIMCO fees), fines, settlements and other amounts incurred in as an injunction or recission. connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the The Charter and Bylaws require AIMCO to indemnify its AIMCO Operating Partnership Agreement. The Delaware LP directors, officers and certain other parties to the Act provides that subject to the standards and fullest extent permitted from time to time by Maryland restrictions, if any, set forth in its partnership law. The MGCL permits a corporation to indemnify its agreement, a limited partnership may, and shall have directors, officers and certain other parties against the power to, indemnify and hold harmless any partner judgments, penalties, fines, settlements and reason- or other person from and against any and all claims and able expenses actually incurred by them in connection demands whatsoever. It is the position of the SEC that with any proceeding to which they may be made a party indemnification of directors and officers for by reason of their service to or at the request of the liabilities arising under the Securities Act is against corporation, unless it is established that (i) the act public policy and is unenforceable pursuant to Section or omission of the indemnified party was material to 14 of the Securities Act of 1933. 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 of (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 was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or upon 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 or conduct required for indemnification to be permitted. It is the position of the SEC 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. 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.
Anti-Takeover Provisions Except in limited circumstances, the AIMCO GP has The Charter and Bylaws of AIMCO contain a number of exclusive management power over the business and provisions that may have the effect of delaying or affairs of the AIMCO Operating Partnership. The AIMCO discouraging an unsolicited proposal for the GP may not be removed as general partner of the AIMCO acquisition of AIMCO or the removal of incumbent Operating Partnership by the limited partners with or management. These provisions include, among others: (1) without cause. Under the AIMCO Operating Partnership authorized shares of stock that may be issued, in the Agreement, the AIMCO GP, as a general partner, may, in discretion of the AIMCO Board of Directors, as its sole discretion, prevent a transferee of an OP Unit Preferred Stock with superior voting rights to the from becoming a substituted limited partner pursuant to Class A Common Stock; (2) a requirement that directors the AIMCO Operating Partnership Agreement. The AIMCO GP may be removed only for cause and by a vote of holders may exercise this right of approval to deter, delay or of at least two-thirds of the votes entitled to be cast hamper attempts by persons to acquire a controlling in the election of directors; (3) advance notice interest in the AIMCO Operating Partnership. required in order to nominate persons for election to Additionally, the AIMCO Operating Partnership Agreement the AIMCO Board of Directors or to propose business to contains restrictions on the ability of limited be considered by stockholders at a stockholder's partners to transfer their OP Units. See "Description meeting; and (4) provisions designed to avoid of OP Units -- Transfers and Withdrawals." concentration of stock ownership in a manner that would jeopardize AIMCO's status as a REIT under the Internal Revenue Code. See "Description of Common Stock -- Restrictions on Transfer" and "Risk Factors -- Ownership Limit." The MGCL contains provisions concerning certain "business combinations" and "control share acquisitions" (each as defined
61 67 AIMCO OPERATING PARTNERSHIP AIMCO in the MGCL) that could have the effect of discouraging offers to acquire AIMCO and of increasing the difficulty of consummating any such offer. See "Description of Common Stock -- Business Combinations" and "Description of Common Stock -- Control Share Acquisitions."
Amendment of the Partnership Agreement or the Charter and Bylaws With the exception of certain circumstances set forth AIMCO may amend, alter or repeal any provision in the AIMCO Operating Partnership Agreement, whereby contained in its Charter upon (i) adoption by the AIMCO the AIMCO GP may, without the consent of the limited Board of Directors of a resolution recommending such partners, amend the AIMCO Operating Partnership amendment, alteration, or repeal, (ii) presentation by Agreement, amendments to the AIMCO Operating the AIMCO Board of Directors to the stockholders of a Partnership Agreement require the consent of the resolution at an annual or special meeting of the limited partners holding a majority of the outstanding stockholders and (iii) approval of such resolution by Common OP Units, excluding the Special Limited Partner the affirmative vote of the holders of a majority (or, and certain other limited exclusions (a "Majority in in certain cases, two- thirds) of the aggregate number Interest"). Amendments to the AIMCO Operating of votes entitled to be cast generally in the election Partnership Agreement may be proposed by the AIMCO GP of directors. or by holders of a Majority in Interest. Following such proposal, the AIMCO GP will submit any proposed Under the MGCL, unless otherwise provided in a amendment to the limited partners. The AIMCO GP will corporation's charter, a proposed charter amendment seek the written consent of the limited partners on the requires an affirmative vote of two-thirds of the proposed amendment or will call a meeting to vote outstanding stock entitled to be cast on the matter. thereon. See "Description of OP Units -- Amendment of However, the Charter provides that it may be amended the AIMCO Operating Partnership Agreement." upon the affirmative vote of a majority (or, as applicable, two-thirds) of the stock entitled to be cast generally in the election of directors ("voting stock"). Under the MGCL, the power to adopt, alter, and repeal the bylaws is vested in the stockholders, except to the extent that the charter or bylaws vest it in the board of directors. The Bylaws provide that they may be amended by vote of a majority of the AIMCO Board of Directors. An amendment to any provision of the Bylaws relating to their repeal or the removal of directors may be effected only by the vote of two-thirds of the voting stock.
Compensation and Fees The AIMCO GP does not receive compensation for its The employees, officers and directors of AIMCO receive services as general partner of the AIMCO Operating compensation for their services. Partnership. However, the AIMCO GP 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 AIMCO GP for such expenses paid by the AIMCO GP. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Except for fraud, willful misconduct or gross The MGCL provides that no stockholder of a corporation negligence, no limited partner has personal liability will be personally liable for any obligations of such for the AIMCO Operating Partnership's debts and corporation. Generally the liability of stockholders obligations, and liability of the limited partners for for AIMCO's debts and obligations is limited to the the AIMCO Operating Partnership's debts and obli- amount of their investment in AIMCO. gations 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 limited partners holding OP Units as a group to make certain amendments to the AIMCO Operating
62 68 AIMCO OPERATING PARTNERSHIP AIMCO 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 limited partner could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Unless otherwise provided for in the relevant Under Maryland law, the members of the AIMCO Board of partnership agreement, Delaware law generally requires Directors must perform their duties in good faith, in a a general partner of a Delaware limited partnership to manner that they reasonably believe to be in the best adhere to fiduciary duty standards under which it owes interests of AIMCO and with the care of an ordinarily its limited partners the highest duties of good faith, prudent person in a like position. Members of the AIMCO fairness and loyalty and which generally prohibit such Board of Directors who act in such a manner will general partner from taking any action or engaging in generally not be liable to AIMCO for monetary damages any transaction as to which it has a conflict of arising from their activities as members of the AIMCO interest. The AIMCO Operating Partnership Agreement Board of Directors. expressly authorizes the AIMCO GP 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 the AIMCO GP, on such terms as the AIMCO GP, in its sole and absolute discretion, believes are advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of the AIMCO GP by providing that the AIMCO GP, 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 AIMCO GP or such director or officer acted in good faith. See "Risk Factors -- Risks Associated With an Investment in OP Units -- Conflicts of Interest and Fiduciary Responsibility" and "Description of OP Units -- Fiduciary Responsibilities."
Federal Income Taxation The AIMCO Operating Partnership is not subject to AIMCO has elected to be taxed as a REIT beginning with federal income taxes. Instead, each OP Unitholder its fiscal year ended December 31, 1994. So long as it includes in income its allocable share of the AIMCO qualifies as a REIT, AIMCO will be permitted to deduct Operating Partnership's taxable income or loss when it distributions paid to its stockholders, which determines its individual federal income tax liability. effectively will reduce the "double taxation" that typically results when a corporation earns income and distributes that income to its stockholders in the form of dividends. A qualified REIT, however, is subject to federal income tax on income that is not distributed and also may be subject to federal income and excise taxes in certain circumstances. The maximum federal income tax rate for corporations under current law is 35%, but in certain circumstances a REIT is subject to a 100% tax on certain kinds of income. Income and loss from the AIMCO Operating Partnership Dividends paid by AIMCO will be treated as "portfolio" may be subject to the passive activity limitations. If income and cannot be offset with losses from "passive an investment in an OP Unit is treated as a passive activities." 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 "publicity 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 companies or interest paid by the management companies does not qualify as passive activity income and cannot be offset against losses from "passive activities."
63 69 AIMCO OPERATING PARTNERSHIP AIMCO Cash distributions by the AIMCO Operating Partnership Distributions by AIMCO to its taxable domestic are not taxable to an OP Unitholder except to the stockholders out of current or accumulated earnings and extent they exceed such Partner's basis in its interest profits will be taxed as ordinary income. Distributions in the AIMCO Operating Partnership (which will include that are designated as capital gain dividends generally such OP Unitholder's allocable share of the AIMCO will be taxed as long-term capital gain, subject to Operating Partnership's nonrecourse debt). certain limitations. A distribution in excess of current or accumulated earnings and profits will be treated as a non-taxable return of basis to the extent of a stockholder's adjusted basis in its shares of stock of AIMCO with respect to which such distribution is received, with the excess, if any, taxed as capital gain. Each year, OP Unitholders receive a Schedule K-1 tax Each year, stockholders of AIMCO receive a Form 1099 form containing tax information for inclusion in used by REITs to report dividends paid to their preparing their federal income tax returns. stockholders. OP Unitholders are required, in some cases, to file Stockholders who are individuals generally will not be state income tax returns and/or pay state income taxes required to file state income tax returns and/or pay in the states in which the AIMCO Operating Partnership state income taxes outside of their states of residence owns property or transacts business, even if they are solely as a result of the fact that AIMCO owns property not residents of those states. The AIMCO Operating or transacts business in various jurisdictions. AIMCO Partnership may be required to pay state income taxes may be required to pay state income taxes in various in certain states. states.
64 70 COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK COMMON OP UNITS CLASS A COMMON STOCK Nature of Investment The Common OP Units constitute equity interests The Class A Common Stock constitute equity interests in entitling each OP Unitholder to his or her pro rata AIMCO. Dividends are paid, when and as declared by the share of cash distributions made from Available Cash AIMCO Board of Directors. In order to qualify as a (as such term is defined in the AIMCO Operating REIT, AIMCO is required to distribute dividends (other Partnership Agreement) to the partners of the AIMCO than capital gain dividends) to its stockholders in an Operating Partnership. amount at least equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed without regard to the dividends paid deduction and AIMCO's net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of noncash income.
Voting Rights Under the AIMCO Operating Partnership Agreement, the Each outstanding share of Class A Common Stock entitles limited partners have voting rights only with respect the holder thereof to one vote on all matters submitted to certain limited matters such as certain amendments to stockholders for vote, including the election of and termination of the AIMCO Operating Partnership directors. See "Description of Common Stock -- Class A Agreement and certain transactions such as the Common Stock." Holders of Class A Common Stock have the institution of bankruptcy proceedings, an assignment right to vote on, among other things, a merger of for the benefit of creditors and certain transfers by AIMCO, amendments to the Charter and the dissolution of the AIMCO GP of its interest in the AIMCO Operating AIMCO. Certain amendments to the Charter require the Partnership or the admission of a successor general affirmative vote of not less than two-thirds of votes partner. entitled to be cast on the matter. The Charter permits the AIMCO Board of Directors to classify and issue capital stock in one or more series having voting power which may differ from that of the Class A Common Stock. Under Maryland law, a consolidation, merger, share exchange or transfer of all or substantially all of the assets of AIMCO requires the affirmative vote of not less than two-thirds of all of the votes entitled to be cast on the matter. With respect to each of these transactions, only the holders of Class A Common Stock are entitled to vote on the matters. No approval of the stockholders is required for the sale of less than all or substantially all of AIMCO's assets. Maryland law provides that the AIMCO Board of Directors must obtain the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter in order to dissolve AIMCO. Only the holders of Class A Common Stock are entitled to vote on AIMCO's dissolution.
Distributions Subject to the rights of holders of any outstanding Holders of the Class A Common Stock are entitled to Preferred OP Units, the AIMCO Operating Partnership received dividends, when and as declared by the AIMCO Agreement requires the AIMCO GP to cause the AIMCO Board of Directors, out of funds legally available Operating Partnership to distribute quarterly all, or therefor. See "Per Share and Per Unit Data." such portion as the AIMCO GP may in its sole and absolute discretion determine, of Available Cash Holders of Class B Common Stock do not have dividend generated by the AIMCO Operating Partnership during rights. A certain number of shares of Class B Common such quarter to the AIMCO GP, the Special Limited Stock are eligible for conversion into an equal number Partner and the holders of Common OP Units on the of shares of Class A Common Stock. Once Class B Common record date established by the AIMCO GP with respect to Stock has been converted into Class A Common Stock, such quarter, in accordance with their respective holders of such shares of converted Class A Common interests in the AIMCO Operating Partnership on such Stock will have dividend rights of Class A Common Stock record date. Holders of any other Preferred OP Units generally. See "Description of Common Stock -- Class B issued in the future may have priority over the AIMCO Common Stock." GP, the Special Limited Partner and holders of Common OP Units with respect to distributions of Available AIMCO, in order to qualify as a REIT, is required to Cash, distributions upon liquidation or other distribute dividends (other than capital gain distributions. See "Per Share and Per Unit Data." dividends) to its stockholders in an amount at least equal to (A) the sum of (i) 95% of AIMCO's
65 71 COMMON OP UNITS CLASS A COMMON STOCK The AIMCO GP in its sole and absolute discretion may "REIT taxable income" (computed without regard to the distribute to the OP Unitholders Available Cash on a dividends paid deduction and AIMCO's net capital gain) more frequent basis and provide for an appropriate and (ii) 95% of the net income (after tax), if any, record date. The AIMCO Operating Partnership Agreement from foreclosure property, minus (B) the sum of certain requires the AIMCO GP to take such reasonable efforts, items of noncash income. See "Federal Income Taxation as determined by it in its sole and absolute discretion of AIMCO and AIMCO Stockholders -- General." and consistent with AIMCO's qualification as a REIT, to cause the AIMCO Operating Partnership to distribute sufficient amounts to enable the AIMCO GP 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 Code, and the Treasury Regulations and (ii) avoid any federal income or excise tax liability of AIMCO. See "Description of OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the OP Units and the OP The Class A Common Stock is transferable subject to the Units are not listed on any securities exchange. Ownership Limit set forth in the Charter. The Class A Common Stock is listed on the NYSE. Pursuant to the AIMCO Operating Partnership Agreement, until the expiration of one year from the date on which an OP Unitholder acquired OP Units, subject to certain exceptions, such OP Unitholder may not transfer all or any portion of its OP Units to any transferee without the consent of the AIMCO GP, 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 OP Units to any person, subject to the satisfaction of certain conditions specified in the AIMCO Operating Partnership Agreement, including the AIMCO GP's right of first refusal. See "Description of OP Units -- Transfers and Withdrawals." After the first anniversary of becoming a holder of Common OP Units, an OP Unitholder has the right, subject to the terms and conditions of 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 OP Units -- Redemption Rights." Upon receipt of a notice of redemption, the AIMCO Operating Partnership may, in its sole and absolute discretion but subject to the restrictions on the ownership of Class A Common Stock imposed under the AIMCO Charter and the transfer restrictions and other limitations thereof, elect to cause AIMCO to acquire some or all of the tendered Common OP Units 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 adjustment as provided in the AIMCO Operating Partnership Agreement.
66 72 FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS The following is a summary of certain federal income tax consequences resulting from the acquisition of, holding, exchanging, and otherwise disposing of Class A Common Stock and the Preferred Stock (collectively, the Class A Common Stock and the Preferred Stock are referred to herein as the "AIMCO Stock"). This discussion is based upon the Code, the Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this Registration Statement and all of which are subject to change, possibly retroactively. Such summary is also based on the assumptions that the operation of AIMCO, the AIMCO Operating Partnership 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 is for general information only and does not purport to discuss all aspects of 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 ruling has been or will be sought from the IRS regarding any matter discussed in this Registration Statement. THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF AIMCO STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE 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 FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE INVESTMENT TRUST. GENERAL The REIT provisions of the Code are highly technical and complex. The following summary sets forth certain aspects of the provisions of the Code that govern the federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety by the applicable Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof, all of which are subject to change, possibly retroactively. AIMCO has elected to be taxed as a REIT under the Code commencing with its taxable year ending December 31, 1994, and AIMCO intends to continue such election. Although AIMCO believes, and it has received an opinion of Counsel to the effect 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 proposed method of operation, and its actual method of operation since its formation, will enable it to meet the requirements for qualification and taxation as a REIT under the Code. No assurance can be given that AIMCO has been or will remain so qualified. It must be emphasized that this opinion is based and conditioned upon certain assumptions and representations and covenants made by AIMCO as to factual matters (including representations of AIMCO concerning its business and properties as set forth in this Registration Statement). The opinion is expressed as of its date and Counsel has no obligation to advise holders of Securities of any subsequent change in the matters stated, represented or assumed or any subsequent change in the applicable law. Moreover, 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 Code as discussed below, the results of which will not be reviewed by Counsel. Accordingly, no assurance can be given that the actual results of AIMCO's operation for any one taxable year will satisfy such requirements. See " -- Failure to Qualify." An opinion of counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge AIMCO's eligibility for taxation as a REIT. 67 73 Provided AIMCO qualifies for taxation as a REIT, it will generally not be subject to 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. However, notwithstanding AIMCO's qualification as a REIT, AIMCO will be subject to federal income tax as follows: First, AIMCO will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains. Second, under certain circumstances, AIMCO may be subject to the "alternative minimum tax" on its items of tax preference. Third, 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. Fourth, 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 equal to (a) the gross income attributable to the greater of the amount by which AIMCO fails the 75% or 95% test multiplied by (b) a fraction intended to reflect AIMCO's profitability. Fifth, 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 amounts actually distributed. Sixth, if AIMCO acquires assets from 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 (such as the assets acquired from Insignia in the Insignia Merger), under Treasury Regulations not yet promulgated, the subchapter C corporation would be required to recognize any net Built-In Gain (as defined below) that would have been realized if the Subchapter C corporation had liquidated on the day before the date of the transfer. Pursuant to IRS Notice 88-19, AIMCO may elect, in lieu of the treatment described above, to be subject to tax at the highest regular corporate tax rate on such gain to the extent of the excess, if any, of the fair market value over the adjusted basis of such asset as of the beginning of the ten-year period ("Built-in Gain"). AIMCO intends to make such an election and, therefore, will be taxed at the highest regular corporate rate on such Built-in Gain if, and to the extent, such assets are sold within the specified ten-year period. It should be noted that AIMCO has acquired (and will acquire in the Insignia Merger) 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. Seventh, 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 Code defines a REIT as a corporation, trust or association (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation, but for the special Code provisions applicable to REITs; (4) that is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) 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 Code to include certain entities); and (7) which meets certain other tests described below (including with respect to the nature of its income and assets). The Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) 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. The Charter provides certain restrictions regarding transfers of its shares, which provisions are intended to assist AIMCO in satisfying the share ownership requirements described in conditions (5) and (6) 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 68 74 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. 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 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 partnerships and limited liability companies in which it has ownership interests (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 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. 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" and, in certain circumstances, interest) or from certain types of temporary investments. 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). 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. 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 operate or manage the property or furnish or render services to the tenants of such property, other than through an "independent contractor" from which the REIT derives no revenue. However, AIMCO (or its affiliates) is 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 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. PAMS LP and the other subsidiaries of the Company that manage the Managed Properties (collectively, the "Management Subsidiaries") receive management fees and other income. A portion of such fees and other income accrue to AIMCO through distributions from the Management Subsidiaries that will be classified as dividend income to the extent of the earnings and profits of the Management Subsidiaries. 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 Code. These relief provisions will be generally available if AIMCO's failure to meet such tests was due to reasonable 69 75 cause and not due to willful neglect, AIMCO attaches a schedule of the sources of its income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances AIMCO would be entitled to the benefit of these relief provisions. If these relief provisions are inapplicable to a particular set of circumstances involving AIMCO, AIMCO will not qualify as a REIT. As discussed above in "-- General," 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 three tests relating to the nature of its assets. 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. Second, not more than 25% of AIMCO's total assets may be represented by securities other than those in the 75% asset class. 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 any one issuer's outstanding voting securities. AIMCO indirectly owns interests in the Management Subsidiaries. As set forth above, the ownership of more than 10% of the 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 Subsidiaries 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 Subsidiaries and these values are subject to change in the future. Accordingly, there can be no assurance that the IRS will not contend that the AIMCO Operating Partnership's ownership interests in the Management Subsidiaries disqualifies AIMCO from treatment 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 Code. Qualified REIT subsidiaries are not treated as separate entities from their parent REIT for 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 federal corporate income taxation, although it may be subject to state or local taxation. In addition, AIMCO's ownership of the voting stock of each qualified REIT subsidiary does not violate the general restriction against ownership of more than 10% of the voting securities of any issuer. Annual Distribution Requirements AIMCO, in order to qualify as a REIT, is required to distribute dividends (other than capital gain dividends) to its stockholders in an amount at least equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed without regard to the dividends paid deduction and AIMCO's net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) 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. To the extent that AIMCO distributes at least 95%, 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 70 76 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 amounts actually distributed. 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 95% 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 federal income tax purposes. In the event that such timing differences occur, in order to meet the 95% 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 being taxed on amounts distributed as deficiency dividends; however, AIMCO will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends. Distribution of Acquired Earnings and Profits The Code provides that when a REIT acquires a corporation that is currently a C corporation (i.e., a corporation without a REIT election, such as Insignia), the REIT may qualify as a REIT only if, as of the close of the year of acquisition, the REIT has no "earnings and profits" acquired from such C corporation. In the Insignia Merger, AIMCO will succeed to the earnings and profits of Insignia and, therefore, AIMCO must distribute such earnings and profits effective on or before December 31, 1998. Insignia has retained independent certified public accountants to determine Insignia's earnings and profits for purposes of this requirement. The determination of the independent certified public accountants will be based upon Insignia's tax returns as filed with the IRS and other assumptions and qualifications set forth in the reports issued by such accountants. Any adjustments to Insignia's income for taxable years ending on or before the closing of the Insignia Merger, including as a result of an examination of its returns by the IRS or the receipt of certain indemnity or other payments, could affect the calculation of Insignia's earnings and profits. Furthermore, the determination of earnings and profits requires the resolution of certain technical tax issues with respect to which there is no authority directly on point and, consequently, the proper treatment of these issues for earnings and profits purposes is not free from doubt. There can be no assurance that the IRS will not examine the tax returns of Insignia and propose adjustments to increase its taxable income and therefore its earnings and profits. In this regard, the IRS can consider all taxable years of Insignia as open for review for purposes of determining the amount of such earnings and profits. Moreover, if the Special Dividend is not treated as a dividend under the Code, AIMCO may, depending upon the amount of other distributions made by AIMCO subsequent to the Insignia Merger, fail to distribute an amount equal to Insignia's earnings and profits. AIMCO's failure to distribute an amount equal to such earnings and profits effective on or before December 31, 1998, would result in AIMCO's failure to qualify as a REIT. Failure to Qualify 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 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 will be taxable as ordinary income, and, subject to certain limitations of the 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. 71 77 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 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. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." 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 an association taxable as a corporation) for federal income tax purposes. If any of these entities were treated as an association for 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 (see "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Asset Tests" and "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Income Tests"), and in turn could prevent AIMCO from qualifying as a REIT. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify" 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 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 federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. See "-- Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership." The AIMCO Operating Partnership was formed by way of contributions of appreciated property (including certain of the Owned Properties). Consequently, allocations must be made in a manner consistent with these requirements. Where a partner contributes cash to a partnership that holds appreciated property, the 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 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 72 78 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. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution Requirements." 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. See "-- Taxation of AIMCO and AIMCO Stockholders -- General -- Income Tests." 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 the Owned Properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating the Owned Properties and to make such occasional sales of the Owned Properties, including peripheral land, as are consistent with AIMCO's investment objectives. TAXATION OF MANAGEMENT SUBSIDIARIES A portion of the amounts to be used to fund distributions to stockholders is expected to come from distributions made by the Management Subsidiaries to the AIMCO Operating Partnership, and interest paid by the Management Subsidiaries on certain notes held by the AIMCO Operating Partnership. In general, the Management Subsidiaries pay federal, state and local income taxes on their taxable income at normal corporate rates. Any federal, state or local income taxes that the Management Subsidiaries 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 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. 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. In addition, net capital gains attributable to the sale of depreciable real property held for more than 12 months is subject to a 25% maximum federal income tax rate 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 73 79 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, 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. In general, any loss upon a sale or exchange of shares 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. Dispositions of AIMCO Stock In general, under the recently enacted Internal Revenue Service Restructuring and Reform Act of 1988, capital gains recognized by individuals and other non-corporate taxpayers upon the sale or disposition of AIMCO Stock will be subject to a maximum federal income tax rate of 20% if the AIMCO Stock is held for more than 12 months and will be taxed at ordinary income rates 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. A redemption of the Preferred Stock will be treated under Section 302 of the Code as a dividend subject to tax at ordinary income tax rates (to the extent of AIMCO's current or accumulated earnings and profits), unless the redemption satisfies certain tests set forth in Section 302(b) of the Code enabling the redemption to be treated as a sale or exchange of the Preferred Stock. The redemption will satisfy such test if it (i) is "substantially disproportionate" with respect to the holder (which will not be the case if only the Preferred Stock is redeemed, since it generally does not have voting rights), (ii) results in a "complete termination" of the holder's stock interest in AIMCO, or (iii) is "not essentially equivalent to a dividend" with respect to the holder, all within the meaning of Section 302(b) of the Code. In determining whether any of these tests have been met, shares considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares actually owned, must generally be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of the Code is satisfied with respect to any particular holder of the Preferred Stock will depend upon the facts and circumstances as of the time the determination is made, prospective investors are advised to consult their own tax advisors to determine such tax treatment. If a redemption of the Preferred Stock is treated as a distribution that is taxable as a dividend, the amount of the distribution would be measured by the amount of cash and the fair market value of any property received by the stockholders. The stockholder's adjusted tax basis in such redeemed Preferred Stock would be transferred to the holder's remaining stockholdings in AIMCO. If, however, the stockholder has no remaining stockholdings in AIMCO, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely. TAXATION OF FOREIGN STOCKHOLDERS The following is a discussion of certain anticipated U.S. federal income and estate tax consequences of the ownership and disposition of AIMCO Stock applicable to Non-U.S. Holders of AIMCO Stock. A "Non-U.S. Holder" is any person other than (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia, (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust if a United States court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. The discussion is based on current law and is for general information only. The discussion addresses only certain and not all aspects of U.S. federal income and estate taxation. 74 80 Ordinary Dividends The portion of dividends received by Non-U.S. Holders payable out of AIMCO's earnings and profits which are not attributable to capital gains of AIMCO and which are not effectively connected with a U.S. trade or business of the Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty). In general, Non-U.S. Holders will not be considered engaged in a U.S. trade or business solely as a result of their ownership of AIMCO Stock. In cases where the dividend income from a Non-U.S. Holder's investment in AIMCO Stock is (or is treated as) effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in the same manner as U.S. Holders are taxed with respect to such dividends (and may also be subject to the 30% branch profits tax in the case of a Non-U.S. Holder that is a corporation). Non-Dividend Distributions Unless AIMCO Stock constitutes a United States Real Property Interest (a "USRPI"), distributions by AIMCO which are not dividends out of the earnings and profits of AIMCO will not be subject to U.S. income or withholding tax. If it cannot be determined at the time a distribution is made whether or not such distribution will be in excess of current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the Non-U.S. Holder may seek a refund of such amounts from the IRS if it is subsequently determined that such distribution was, in fact, in excess of current and accumulated earnings and profits of AIMCO. If AIMCO Stock constitutes a USRPI, such distributions will be subject to 10% withholding and taxed pursuant to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at a rate of 35% to the extent such distributions exceed a stockholder's basis in his or her AIMCO Stock. Capital Gain Dividends Under FIRPTA, a distribution made by AIMCO to a Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs such as the properties beneficially owned by AIMCO ("USRPI Capital Gains"), will be considered effectively connected with a U.S. trade or business of the Non-U.S. Holder and subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether such distribution is designated as a capital gain dividend. In addition, AIMCO will be required to withhold tax equal to 35% of the amount of dividends to the extent such dividends constitute USRPI Capital Gains. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of Non-U.S. Holder that is a corporation. Dispositions of AIMCO Stock Unless AIMCO Stock constitutes a USRPI, a sale of such stock by a Non-U.S. Holder generally will not be subject to U.S. taxation under FIRPTA. The stock will not constitute a USRPI if AIMCO is a "domestically controlled REIT." A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by Non-U.S. Holders. AIMCO believes that it is, and it expects to continue to be, a domestically controlled REIT and, therefore, the sale of AIMCO Stock should not be subject to taxation under FIRPTA. Because the Class A Common Stock is publicly traded, however, no assurance can be given that AIMCO is or will continue to be a domestically controlled REIT. If AIMCO does not constitute a domestically controlled REIT, a Non-U.S. Holder's sale of stock generally will still not be subject to tax under FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market (e.g., the NYSE, on which AIMCO Class A Common Stock is listed) and (ii) the selling Non-U.S. Holder held 5% or less of AIMCO's outstanding stock at all times during a specified testing period. If gain on the sale of stock of AIMCO were subject to taxation under FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S. stockholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals) 75 81 and the purchaser of the stock could be required to withhold 10% of the purchase price and remit such amount to the IRS. Gain from the sale of AIMCO Stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's investment in the AIMCO Stock is effectively connected with a U.S. trade or business conducted by such Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (ii) if the Non-U.S. Holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a "tax home" in the United States, the nonresident alien individual will be subject to a 30% tax on the individual's capital gain. Estate Tax AIMCO Stock owned or treated as owned by an individual who is not a citizen or resident (as specially defined for U.S. federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. Such individual's estate may be subject to U.S. federal estate tax on the property includible in the estate for U.S. federal estate tax purposes. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING AIMCO will report to its U.S. stockholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding at the rate of 31% with respect to distributions paid unless such holder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. A stockholder who does not provide AIMCO with his correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. In addition, AIMCO may be required to withhold a portion of capital gain distributions to any Non-U.S. Holders who fail to certify their foreign status to AIMCO. The IRS has issued final Treasury Regulations regarding the backup withholding rules as applied to Non-U.S. Holders. Those final Treasury Regulations alter the current system of backup withholding compliance and will be effective for payments made after December 31, 1999. Prospective investors in AIMCO Stock should consult their tax advisors regarding the application of these Treasury Regulations. 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 federal income taxation. However, they are subject to taxation on their unrelated business taxable income ("UBTI"). While many investments in real estate generate UBTI, the IRS has 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, amounts distributed by AIMCO to Exempt Organizations should generally not constitute UBTI. However, if an Exempt Organization finances its acquisition of the AIMCO Stock with debt, 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 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 76 82 AIMCO's stock only if (i) the UBTI Percentage is at least 5%, (ii) 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 (iii) 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. FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS The following is a summary of certain federal income tax consequences resulting from the acquisition of, holding, exchanging, and otherwise disposing of OP Units. This discussion is based upon the Code, the Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this Registration Statement and all of which are subject to change, 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 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 OP Units as "capital assets' (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Registration Statement. THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OP UNITS DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OP UNITS AND OF AIMCO'S ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE INVESTMENT TRUST. PARTNERSHIP STATUS AIMCO has received an opinion of Counsel to the effect that the AIMCO Operating Partnership is classified as a partnership for federal income tax purposes, and not as an association taxable as a corporation. It must be emphasized that this opinion of Counsel is based on and conditioned upon ceratin assumptions and representations and on opinions of local counsel with respect to matters of local law. The opinion is expressed as of its date and Counsel has no obligation to advise AIMCO of any subsequent change in matters stated, represented or assumed or any subsequent change in the applicable law. An opinion of Counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge the status of the AIMCO Operating Partnership as a partnership. Some partnerships are, for federal income tax purposes, characterized not as a partnership but as an association taxable as a corporation or as a "publicly traded partnership" taxable as a corporation. 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 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 77 83 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 1, 2006. The AIMCO Operating Partnership believes that it is subject to such grandfather rule and that it cannot rely on the safe harbors contained in the PTP Regulations. 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 impossible to predict whether the AIMCO Operating Partnership will satisfy a safe harbor in future tax years. The safe harbors in Notice 88-75 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 characterized 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 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 OP Unitholder would be subject to special rules under section 469 of the Code. See "Limitations on Deductibility of Losses -- Passive Activity Loss Limitation." 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 characterized 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 OP Unitholders would be subject to tax in the same manner as stockholders of a corporation. Thus, the AIMCO Operating Partnership would be subject to federal tax (and possibly state and local taxes) on its net income, determined without reduction for any distributions made to the OP Unitholders, at regular federal corporate income tax rates, thereby reducing the amount of any cash available for distribution to the OP Unitholders, which reduction could also materially and adversely impact the liquidity and value of the OP Units. In addition, the AIMCO Operating Partnership's items of income, gain, loss, deduction and credit would not be passed through to the OP Unitholders and the OP Unitholders would not be subject to tax on the income earned by the AIMCO Operating Partnership. Distributions received by an OP Unitholder from the AIMCO Operating Partnership, however, would be treated as dividend income for federal income tax purposes, subject to tax as ordinary income 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 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 federal income tax purposes which would have a material adverse impact on AIMCO. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- Tax Aspects of AIMCO's Investments in Partnerships." 78 84 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 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 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 federal income tax purposes. TAXATION OF OP UNITHOLDERS In general, a partnership is treated as a "pass-through" entity for federal income tax purposes and is not itself subject to 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 credits ("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 federal income tax will be payable by the AIMCO Operating Partnership. Instead, each 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 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 the Deductibility of Losses." An OP Unitholder's allocable share of the AIMCO Operating Partnership's taxable income may exceed the cash distributions to the OP Unitholder for any year if the AIMCO Operating Partnership retains its profits rather than distributing them. ALLOCATIONS OF AIMCO OPERATING PARTNERSHIP PROFITS AND LOSSES For federal income tax purposes, an 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 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 under the heading "Description of OP Units--Allocations of Net Income and Net Loss." If the allocations provided by the AIMCO Operating Partnership Agreement were successfully challenged by the IRS, the redetermination of the allocations to a particular OP Unitholder for federal income tax purposes may be less favorable than the allocation set forth in the AIMCO Operating Partnership Agreement. 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 an 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 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 OP Unitholder to the AIMCO Operating Partnership, (B) reduced, but not below zero, by the OP Unitholder's allocable share of AIMCO Operating Partnership distributions, deductions, and losses, (C) increased by the OP Unitholder's allocable share of AIMCO Operating Partnership income and gains, and (D) increased by the OP Unitholder's allocable share of the AIMCO Operating Partnership liabilities and decreased by the OP Unitholder's liabilities assumed by the AIMCO Operating Partnership. 79 85 CASH DISTRIBUTIONS Cash distributions received from a partnership do not necessarily correlate with income earned by the partnership as determined for federal income tax purposes. Thus, an OP Unitholder's 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 OP Unitholder from the AIMCO Operating Partnership during such year. If cash distributions, including a "deemed" cash distribution as discussed below, received by an 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 federal income tax purposes, a return of capital to the extent of such OP Unitholder's adjusted tax basis in his AIMCO Operating Partnership interest. Such return of capital will not be includible in the taxable income of the OP Unitholder, for federal income tax purposes, but it will reduce, but not below zero, the adjusted tax basis of the AIMCO Operating Partnership interest held by the OP Unitholder. If an OP Unitholder's tax basis in his AIMCO Operating Partnership interest is reduced to zero, a subsequent cash distribution received by the OP Unitholder will be subject to tax as capital gain income, but only if, and to the extent that, such distribution exceeds the subsequent positive adjustments, if any, to the tax basis of the 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 an OP Unitholder's share of the AIMCO Operating Partnership liabilities resulting from the payment or other settlement of such liabilities is generally treated, for federal income tax purposes, as a deemed cash distribution. A decrease in an OP Unitholder's percentage interest in the AIMCO Operating Partnership, because of the issuance by the AIMCO Operating Partnership of additional OP Units, or otherwise, will decrease an OP Unitholder's share of nonrecourse liabilities of the AIMCO Operating Partnership, if any, and thus, will 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 an OP Unitholder, regardless of such OP Unitholder's tax basis in his OP Units, if the distribution reduces such OP Unitholder's share of the AIMCO Operating Partnership's "Section 751 Assets." "Section 751 Assets" are defined by the Code to include "unrealized receivables" or "substantially appreciated inventory". For this purpose, inventory is substantially appreciated if its value exceeds 120% of its adjusted basis. 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 an 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 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 OP Unitholder. This deemed exchange will generally result in the realization of ordinary income under Section 751(b) by the OP Unitholder. Such income will equal the excess of (1) the non-pro rata portion of such distribution over (2) the OP Unitholder's tax basis in such OP Unitholder's share of such Section 751 Assets deemed relinquished in the exchange. TAX CONSEQUENCES UPON CONTRIBUTION OF PROPERTY TO THE AIMCO OPERATING PARTNERSHIP Generally, Section 721 of the Code provides that neither the Contributing Partner nor the AIMCO Operating Partnership will recognize a gain or loss, for federal income tax purposes, upon a contribution of property to the AIMCO Operating Partnership in exchange for OP Units. Notwithstanding this general rule of nonrecognition, the Contributing Partner may recognize a gain where the property transferred is subject to liabilities, or the AIMCO Operating Partnership assumes liabilities in connection with a transfer of property, and the amount of such liabilities exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the Contributing Partner as determined immediately after the transfer. Such excess is treated by the Contributing Partner, for federal income tax purposes, as the receipt of a deemed distribution of cash to the Contributing Partner from the AIMCO Operating Partnership. If a person transfers to the AIMCO Operating Partnership an interest in another partnership (the "Underlying Partnership") in exchange for an OP Unit, the person will be treated, for federal income tax purposes, as having transferred to the AIMCO Operating Partnership his allocable share of the liabilities of the Underlying Partnership, which could result in, 80 86 or increase the amount of, a deemed cash distribution. As discussed above, such deemed cash distributions are generally treated as a nontaxable return of capital to the extent of the Contributing Partner's adjusted tax basis in his OP Units and thereafter as gain from the sale of such partnership interest. If a Contributing Partner receives or is deemed to receive for federal income tax purposes, cash in addition to OP Units upon the contribution of property to the AIMCO Operating Partnership, the transaction will likely be treated as part contribution of property and part sale of property. In such event, the Contributing Partner will recognize gain or loss with respect to the portion of the property that is deemed sold to the AIMCO Operating Partnership. If a Contributing Partner transfers property to the AIMCO Operating Partnership in exchange for an OP Unit and the adjusted tax basis of such property differs from its fair market value, AIMCO Operating Partnership Tax Items 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. Where a partner contributes cash to a partnership that holds appreciated property, the 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 federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the OP Unitholders. The general purpose underlying this provision is to specially allocate certain Partnership Tax Items in order to place both the noncontributing and Contributing Partners in the same tax position that they would have been in had the Contributing Partner contributed property with an adjusted tax basis equal 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. The AIMCO GP, in its discretion and in a manner consistent with the Treasury Regulations, will select and adopt a method of allocating AIMCO Operating Partnership Tax Items, including the remedial allocation method, for purposes of eliminating such disparities. In general, certain 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 contributed properties. Accordingly, in the event the AIMCO Operating Partnership disposes of contributed property, income attributable to the Book-Tax Difference of such contributed property generally will be allocated to the Contributing Partner, and the other 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 the Contributing Partner, with the result that the Contributing Partner may not necessarily 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 OP Unitholder to be allocated lower amounts of depreciation and other deductions for tax purposes than would be allocated to such 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. This may cause noncontributing OP Unitholders to recognize taxable income in excess of cash proceeds. LIMITATIONS ON DEDUCTIBILITY OF LOSSES Basis Limitation. To the extent that an 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 of the taxable year in which the losses and deductions flow through, the excess losses and deductions cannot be utilized, for federal income tax purposes, by the 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 81 87 that, there is an increase in the tax basis of the AIMCO Operating Partnership interest held by such 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 Code, a noncorporate taxpayer and a closely held corporate taxpayer are generally not permitted to claim a deduction, for 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 which constitutes "the holding of real property," which the holding of an OP Unit should constitute. "Passive Activity Loss" Limitation. The passive activity loss rules of section 469 of the Code limit the use of losses derived from passive activities, which generally includes an investment in limited partnership interests such as the OP Units. If an investment in an OP Unit is treated as a passive activity, an 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 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 an OP Unit by the OP Unitholder, regardless of whether such 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 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 OP Unitholder's "entire interest" in the AIMCO Operating Partnership (rather than upon the disposition of an interest in an "activity"). SECTION 754 ELECTION The AIMCO Operating Partnership has made the election permitted by Section 754 of the Code. Election is irrevocable without the consent of the IRS. The election will generally permit a purchaser of OP Units, such as AIMCO when it acquires AIMCO OP Units from OP Unitholders, to adjust its share of the basis in the AIMCO Operating Partnership's properties pursuant to Section 743(b) of the Code to fair market value (as reflected by the value of consideration paid for the 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 OP Units and is not added to the bases of the AIMCO Operating Partnership's assets associated with all of the OP Unitholders in the AIMCO Operating Partnership. DEPRECIATION Section 168(i)(7) of the 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 82 88 Contributing Partner to the AIMCO Operating Partnership in exchange for OP Units. However, an acquiror of 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 An OP Unitholder will recognize a gain or loss upon a sale of an OP Unit, a redemption of an OP Unit for cash, an exchange of an OP Unit for shares of AIMCO Stock, or other taxable disposition of an OP Unit. Gain or loss recognized upon a sale or exchange of an OP Unit will be equal to the difference between (i) the sum of the amount realized in the transaction, which, in the case of the receipt of shares of AIMCO Stock will be an amount equal to their fair market value at the time that the transaction is consummated, plus the amount of AIMCO Operating Partnership liabilities allocable to the OP Unit at such time and (ii) the OP Unitholder's tax basis in the OP Unit disposed of, which tax basis will be adjusted for the OP Unitholder's allocable share of the AIMCO Operating Partnership's income or loss for the taxable year of the disposition. In the case of a gift of an OP Unit, an OP Unitholder will be deemed to have an amount realized equal to the amount of the AIMCO Operating Partnership's nonrecourse liabilities allocable to such OP Unit, and to the extent that the amount realized exceeds the OP Unitholder's basis for the OP Unit disposed of, such OP Unitholder will recognize gain for federal income tax purposes. The tax liability resulting from the gain recognized on a disposition of an OP Unit could exceed the amount of cash and the fair market value of property received. If the AIMCO Operating Partnership redeems an OP Unitholder's 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 an OP Unitholder's OP Units, the OP Unitholder would recognize no taxable loss and would recognize taxable gain only to the extent that the cash, plus the amount of AIMCO Operating Partnership liabilities allocable to the redeemed OP Units, exceeded the OP Unitholder's adjusted tax basis in all of such OP Unitholder's OP Units immediately before the redemption. Under the recently enacted Internal Revenue Service Restructuring and Reform Act of 1988, capital gains recognized by individuals and certain other noncorporate taxpayers upon the sale or disposition of an OP Unit will be subject to a maximum federal income tax rate of 20% if the OP Unit is held for more than 12 months and will be taxed at ordinary income tax rates if the OP Unit is held for 12 months or less. Generally, gain or loss recognized by an OP Unitholder on the sale or other taxable disposition of an 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 an OP Unit attributable to an OP Unitholder's share of "unrealized receivables" of 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. In addition, the maximum federal income tax rate for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as the AIMCO Operating Partnership) held for more than 12 months is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." TERMINATION OF THE AIMCO OPERATING PARTNERSHIP In the event of the dissolution of the AIMCO Operating Partnership, a distribution of AIMCO Operating Partnership property (other than money and marketable securities) will not result in taxable gain to an OP Unitholder (except to the extent provided in Section 737 of the Code for liquidations occurring within seven years of the date of contribution by an OP Unitholder of property to the AIMCO Operating Partnership), and the OP Unitholder will hold such distributed property with a basis equal to the adjusted basis of such OP Units exchanged therefor, reduced by any money distributed in liquidation. Further, the liquidation of the AIMCO Operating Partnership will be taxable to a holder of 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 OP Unitholder's tax basis in his OP Units. 83 89 ALTERNATIVE MINIMUM TAX The 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 Code which the AIMCO Operating Partnership will use in computing its income for regular federal income tax purposes. Accordingly, an OP Unitholder's AMTI derived from the AIMCO Operating Partnership may be higher than such OP Unitholder's share of the AIMCO Operating Partnership's net taxable income. Prospective investors should consult with their tax advisors as to the impact of an investment in 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 OP Unitholder within 90 days after the close of each taxable year of the AIMCO Operating Partnership, certain tax information, including a Schedule K-1, which sets forth each OP Unitholder's allocable share of the AIMCO Operating Partnership's Taxable Items. In preparing this information the AIMCO GP will use various accounting and reporting conventions to determine the respective OP Unitholder's allocable share of Partnership Tax Items. There is no assurance that any such conventions will yield a result which conforms to the requirements of the Code, the Treasury Regulations or administrative interpretations of the IRS. The AIMCO GP cannot assure a current or prospective 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 OP Unitholders' tax returns and may lead to audits of their returns and adjustments of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would bear the cost of any expenses incurred in connection with an examination of such OP Unitholder's personal tax return. Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of Partnership Tax Items generally are determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the partners. The 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 OP Unitholders and can extend the statute of limitations for assessment of tax deficiencies against OP Unitholders with respect to the AIMCO Operating Partnership Tax Items. The Tax Matters Partner may bind an OP Unitholder with less than a 1% profits interest in the AIMCO Operating Partnership to a settlement with the IRS, unless such 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 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 OP Unitholder having at least a 1% interest in the profits of the AIMCO Operating Partnership or by OP Unitholders having in the aggregate at least a 5% profits interest. However, only one action for judicial review will go forward, and each OP Unitholder with an interest in the outcome may participate. 84 90 TAXATION OF FOREIGN OP UNITHOLDERS A Non-U.S. Holder will be considered to be engaged in a United States trade or business on account of its ownership of an OP Unit. As a result, a Non-U.S. Holder will be required to file federal tax returns with respect to its allocable share of the AIMCO Operating Partnerships income which is effectively connected to its trade or business. A Non-U.S. Holder that is a corporation may also be subject to United States branch profit tax at a rate of 30%, in addition to regular federal income tax, on its allocable share of such income. Such a tax may be reduced or eliminated by an income tax treaty between the United States and the country with respect to which the Non-U.S. Holder is resident for tax purposes. Non-U.S. Holders are advised to consult their tax advisors regarding the effects an investment in the AIMCO Operating Partnership may have on information return requirements and other United States and non-United States tax matters, including the tax consequences of an investment in the AIMCO Operating Partnership for the country or other jurisdiction of which such Non-U.S. Holder is a citizen or in which such Non-U.S. Holder resides or is otherwise located. OTHER TAX CONSEQUENCES POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the federal laws and interpretations thereof could adversely affect an investment in AIMCO or the AIMCO Operating Partnership. For example, a proposal issued by President Clinton on February 2, 1998, if enacted into law, may adversely affect the ability of AIMCO to expand the present activities of its Management Subsidiaries. It cannot be predicted whether, when, in what forms, or with what effective dates, the tax laws applicable to AIMCO or the AIMCO Operating Partnership, or an investment in AIMCO or the AIMCO Operating Partnership, will be changed. 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 federal income tax consequences discussed above. Consequently, prospective investors should consult their own tax advisors regarding the application and effect of state, local foreign tax laws on an investment in the AIMCO Operating Partnership or AIMCO. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with them, 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 filed with the SEC will update and supersede this information. We incorporate by reference the documents listed below and any future filings made by Apartment Investment and Management Company with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is completed. 85 91 - Apartment Investment and Management Company's Annual Report on Form 10-K/A for the year ended December 31, 1997; - Apartment Investment and Management Company's Quarterly Reports on Form 10-Q/A and Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998, respectively; - Apartment Investment and Management Company's Current Reports on Form 8-K, dated December 23, 1997 (and Amendment No. 1 thereto filed February 6, 1998 and Amendment No. 2 thereto filed May 22, 1998), January 31, 1998, March 17, 1998 (and Amendment No. 1 thereto filed April 3, 1998, Amendment No. 2 thereto filed June 22, 1998, Amendment No. 3 thereto filed July 2, 1998, Amendment No. 4 thereto filed August 6, 1998, Amendment No. 5 thereto filed September 4, 1998 and Amendment No. 6 thereto filed September 25, 1998), September 2, 1998, October 1, 1998 and October 19, 1998; - the description of Apartment Investment and Management Company's capital stock contained in its Registration Statement on Form 8-A (File No. 1-13232) filed July 19, 1994, including any amendment or reports filed for the purpose of updating such description; and - AIMCO Properties, L.P.'s Registration Statement on Form 10, filed September 4, 1998 and Amendment 1, filed October 16, 1998. You may request a copy of these filings, at no cost, by writing or calling us at the following address and telephone number: Corporate Secretary Apartment Investment and Management Company 1873 South Bellaire Street, 17th Floor Denver, Colorado 80222 (303) 757-8101 You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of the document. LEGAL MATTERS Certain matters as to Maryland law and the validity of the Class A Common Stock and the Preferred Stock will be passed upon for AIMCO by Piper & Marbury L.L.P., Baltimore, Maryland. Certain matters as to the validity of the OP Units will be passed upon for the AIMCO Operating Partnership by Skadden, Arps, Slate, Meagher & Flom LLP. 86 92 EXPERTS The consolidated financial statements of AIMCO included in AIMCO's Annual Report on Form 10-K/A for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. The consolidated financial statements of the AIMCO Operating Partnership as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in the AIMCO Operating Partnership's Registration Statement on Form 10 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. The consolidated financial statements of Ambassador Apartments, Inc. as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, included in AIMCO's Current Report on Form 8-K dated March 17, 1998 (as amended on April 3, 1998) and the consolidated financial statements of Ambassador Apartments, Inc. as of December 31, 1996 and 1995, and for each of the two years in the period ended December 31, 1996 and the period from August 31, 1994 through December 31, 1994, and the combined financial statements of Prime Properties (Predecessor to Ambassador Apartments, Inc.) for the period from January 1, 1994 through August 30, 1994, included in Amendment No. 1 to AIMCO's Current Report on Form 8-K dated December 23, 1997, filed on February 6, 1998, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference. The consolidated financial statements of Insignia Financial Group, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17, 1998 (and Amendment No. 1 thereto filed April 3, 1998), have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 87 93 APPENDIX A GLOSSARY Unless the context requires otherwise, the following terms used in this Prospectus have the respective meanings set forth below: "1997 Housing Act" means the Multifamily Assisted Housing Reform and Affordability Act of 1997. "ACMs" means asbestos-containing materials. "ADA" means the Americans with Disabilities Act of 1990. "affordable" means, with respect to apartment units or residential properties, that such units or properties benefit from an interest rate or rental subsidy or are otherwise subject to governmental programs intended to provide housing to persons with low or moderate incomes. "Aggregate Cash Amount" means the aggregate amount that AIMCO elects to pay in cash to the Insignia stockholders, pursuant to the Insignia Merger; provided, however, that the Aggregate Cash Amount may not exceed the lesser of (i) $15,000,000 and (ii) the product of (x) $36.50 less the AIMCO Index Price, multiplied by (y) the sum of the number of shares of Insignia common stock outstanding at the Effective Time plus the number of shares of Insignia common stock for which outstanding Insignia Convertible Securities are exercisable, whether or not vested, at the Effective Time. "AIMCO" means Apartment Investment and Management Company, a Maryland corporation. "AIMCO Board" means the board of directors of AIMCO. "AIMCO GP" means AIMCO-GP, Inc., a wholly owned subsidiary of AIMCO and the general partner of the AIMCO Operating Partnership. "AIMCO Index Price" means the average trading price of Class A Common Stock over the 20-day period ended five trading days prior to the Effective Time, but in no event greater than $38.00. "AIMCO IPO" means AIMCO's initial public offering of Class A Common Stock in July 1994. "AIMCO Operating Partnership" means AIMCO Properties, L.P., a Delaware limited partnership. "AIMCO Operating Partnership Agreement" means the agreement of limited partnership of the AIMCO Operating Partnership. "AIMCO Properties" means the Managed Properties, Owned Properties and Equity Properties. "AIMCO Stock" means the Class A Common Stock and the Preferred Stock. "Ambassador" means the Ambassador Apartments, Inc. "Ambassador Common Stock" means the common stock, par value $.01 per share, of Ambassador. "Ambassador Merger" means the merger of Ambassador with and into AIMCO on May 8, 1998. "AMIT" means Angeles Mortgage Investment Trust. "AMTI" means alternative minimum taxable income. "ANHI" means AIMCO/NHP Holdings, Inc. "Assignee" means any person to whom one or more OP Units have been transferred. "Bank of America" means Bank of America National Trust and Savings Association. "Base Rate" means quarterly cash dividends per share equal to $1.78125. "BOA Credit Facility" means the $50 million unsecured revolving credit facility entered into in January 1998 between the Company, Bank of America, and BankBoston, N.A. A-1 94 "Book-Tax Difference" means, generally, 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. "Built-in Gain" means to be subject to tax at the highest regular corporate tax rate on the excess, if any, of the fair market value over the adjusted basis of any particular asset as of the beginning of a ten-year period. "Bylaws" means the bylaws of AIMCO. "California Actions" means the two complaints filed in Superior Court of the State of California against the Company and the J.W. English Companies. "Capital Replacement" means capitalized spending which maintains a property. "Charter" means AIMCO's charter. "City of Austin" means Austin, Texas. "CK" means CK Services, Inc. "CK Contribution Agreement" means the Contribution Agreement, dated January 31, 1998, among AIMCO, CK and the stockholders of CK. "Class A Common Stock" means the Class A Common Stock, par value $.01 per share, of AIMCO. "Class B Common Stock" means the Class B Common Stock, par value $.01 per share, of AIMCO. "Class B Parity Stock" means capital stock of AIMCO that ranks on parity with Class B Preferred Stock with respect to payments of dividends or upon liquidation, dissolution, winding up or otherwise. "Class B Partnership Preferred Units" means the Class B Partnership Preferred Units of the AIMCO Operating Partnership. "Class B Preferred Ownership Limit" means a number of shares of Class B Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class B Preferred Stock that are owned by such holder. "Class B Preferred Stock" means the Class B Cumulative Convertible Preferred Stock, par value $.01 per share, of AIMCO. "Class C Junior Stock" means Common Stock and Class E Preferred Stock, if any, to be issued in the Insignia Merger, and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class C Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class C Liquidation Preference" means the liquidation preference of $25 per share on the Class C Preferred Stock. "Class C Parity Stock" means the Class B Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class C Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class C Partnership Preferred Units" means the Class C Partnership Preferred Units of the AIMCO Operating Partnership. "Class C Preferred Ownership Limit" means a number of shares of Class C Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment A-2 95 companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class C Preferred Stock that are owned by such holder. "Class C Preferred Stock" means the Class C Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class C Senior Stock" means any class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class C Preferred Stock. "Class D Junior Stock" means Common Stock and Class E Preferred Stock, if any, to be issued in the Insignia Merger, and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class D Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class D Liquidation Preference" means the liquidation preference of $25 per share on the Class D Preferred Stock. "Class D Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class D Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class D Partnership Preferred Units" means the Class D Partnership Preferred Units of the AIMCO Operating Partnership. "Class D Preferred Ownership Limit" means a number of shares of Class D Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class D Preferred Stock that are owned by such holder. "Class D Preferred Stock" means the Class D Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class D Senior Stock" means any class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class D Preferred Stock. "Class E Call Date" means the date specified for redemption by AIMCO in a notice sent to holders of Class E Preferred Stock. "Class E Conversion Date" means the date on which the Special Dividend is paid to the holders of the Class E Preferred Stock, on which each share of Class E Preferred Stock will be automatically converted into one share of Class A Common Stock without any action of AIMCO or the holder of such share. "Class E Junior Stock" means Common Stock, and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class E Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class E Liquidation Preference" means the liquidation preference of $1 per share plus the Special Dividend if such dividend is unpaid on the date of the final distribution to such holders. A-3 96 "Class E Parity Stock" means any class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class or series of stock and the Class E Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class E Partnership Preferred Units" means the Class E Partnership Preferred Units of the AIMCO Operating Partnership. "Class E Preferred Stock" means Class E Preferred Stock, par value $.01 per share, of AIMCO. "Class E Senior Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class E Preferred Stock. "Class G Junior Stock" means the Common Stock, Class E Preferred Stock if issued in the Insignia Merger, and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class G Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class G Liquidation Preference" means the liquidation preference of $25 per share on the Class G Preferred Stock. "Class G Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock and any other class or series of stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class G Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class G Partnership Preferred Units" means the Class G Partnership Preferred Units of the AIMCO Operating Partnership. "Class G Preferred Ownership Limit" means a number of shares of Class G Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class G Preferred Stock that are owned by such holder. "Class G Preferred Stock" means the Class G Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class G Senior Stock" means any class or series of capital stock of AIMCO which if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class G Preferred Stock. "Class H Junior Stock" means the Common Stock, Class E Preferred Stock if issued in the Insignia Merger, and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class H Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class H Liquidation Preference" means the liquidation preference of $25 per share on the Class H Preferred Stock. A-4 97 "Class H Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock and any other class or series of stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class H Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class H Partnership Preferred Units" means the Class H Partnership Preferred Units of the AIMCO Operating Partnership. "Class H Preferred Ownership Limit" means a number of shares of Class H Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class H Preferred Stock that are owned by such holder. "Class H Preferred Stock" means the Class H Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class H Senior Stock" means any class or series of capital stock of AIMCO which if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class H Preferred Stock. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Security and Exchange Commission. "Common OP Units" means Partnership Common Units of the AIMCO Operating Partnership. "Common Stock" means the Class A Common Stock and the Class B Common Stock. "Common OP Unitholders" means the holders of Common OP Units. "Company" means AIMCO, together with its consolidated subsidiaries, including the AIMCO Operating Partnership. "Company Predecessors" means AIMCO and Property Asset Management, L.L.C., and its affiliated companies and PDI Realty Enterprises, Inc. "Complaint" means the purported class and derivative complaint filed in California Superior Court in the County of San Mateo by persons claiming to own limited partner interests in the Insignia Partnerships against Insignia, the Insignia GPs, AIMCO, certain persons and entities who purportedly formerly controlled the Insignia GPs and additional entities affiliated with, and individuals who are officers, directors or principals of, several of the defendants. "Consolidated Amended Complaint" means the consolidated amended complaint filed by plaintiffs on February 25, 1998 relating to the California Actions. "Contributing Partner" means a person contributing property to the AIMCO Operating Partnership in exchange for OP Units. "control share acquisition" means the acquisition of control shares, subject to certain exceptions. "control shares" means 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: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority or (iii) 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. A-5 98 "Convertible Securities" means warrants, options, convertible debt securities, equity securities, contingent rights or other similar securities upon which the Securities may be exchanged, exercised or converted. "Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AIMCO. "Credit Facilities" means the WMF Credit Facility and the BOA Credit Facility. "Current Market Price" per share of Class A Common Stock on any date means the average of the daily market prices of a share of Class A Common Stock for the five consecutive trading days preceding such date. The market price for each such day shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Class A Common Stock is not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Stock is listed or admitted to trading or, if the Class A Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Class A Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Class A Common Stock selected by the AIMCO Board. "Debt Coverage Ratio" means the ratio of EBITDA (less a provision of approximately $300 per owned apartment) to debt. "Delaware LP Act" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, or any successor to such statute. "Distribution" means the transfer of the remaining business of Insignia to Holdings and the distribution of all of the capital stock of Holdings to Insignia's stockholders prior to the Insignia Merger. "Dividend Payment Date" means any date on which cash dividends are paid on the Class A Common Stock. "DOJ" means the U.S. Department of Justice. "domestically controlled REIT" means a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by Non-U.S. Holders. "Effective Time" means the effective time of the Insignia Merger. "Eligible Class B Shares" means the number of shares of Class B Common Stock outstanding as of the Year-end Test Date which become eligible for automatic conversion into an equal number of shares of Class A Common Stock (subject to the Ownership Limit). "English Acquisition" means the Company's acquisition in November 1996 of certain partnership interests, real estate and related assets owned by the J.W. English Companies. "English Partnerships" means 31 limited partnerships, interests in which were purchased by the Company from the J.W. English Companies pursuant to the English Acquisition. "English Tender Offers" means the separate tender offers made by the AIMCO Operating Partnership to the limited partners of 25 of the English Partnerships. "EPA" means the U.S. Environmental Protection Agency. "Equity Properties" means the apartment properties in which AIMCO holds an equity interest. "Exchange Act" means the Securities Exchange Act of 1934, as amended. A-6 99 "Exempt Organizations" means tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts. "Federal Action" means the class action lawsuit filed in November 1996 by purported limited partners of certain of the Tender Offer English Partnerships against the Company and J.W. English in the U.S. District Court for the Northern District of California. "FFO" means funds from operations. "FFO Per Share" or "Funds from Operating Per Share" means, for any period, (i) net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, less any preferred stock dividend payments, divided by (ii) the sum of (a) the number of shares of the Class A Common Stock outstanding on the last day of such period (excluding any shares of the Class A Common Stock into which shares of the Class B Common Stock shall have been converted as a result of the conversion of shares of the Class B Common Stock on the last day of such period) and (b) the number of shares of the Class A Common Stock issuable to acquire units of limited partnership that (x) may be tendered for redemption in any limited partnership in which AIMCO serves as general partner and (y) are outstanding on the last day of such period. "FHAA" means the Fair Housing Amendments Act of 1988. "FIRPTA" means Foreign Investment in Real Property Tax Act of 1980. "FNMA" means the Federal National Mortgage Association. "GAAP" means generally accepted accounting principles. "GMAC" means General Motors Acceptance Corporation. "GMAC Loans" means the 93 loans made by GMAC as of June 30, 1998 with an aggregate outstanding principal balance of $420.1 million to property owning partnerships of the Company, each of which is secured by the Owned Property of such partnership. "HAP Contracts" means Housing Assistance Payment Contracts. "High Performance Units" means the OP Units designated as Class I High Performance Units. "Holdings" means Insignia/ESG Holdings, Inc. "HUD" means the U.S. Department of Housing and Urban Development. "Indemnitee" means the AIMCO Operating Partnership's directors and officers. "Insignia" means the Insignia Financial Group, Inc. "Insignia Convertible Securities" means any and all securities issued by Insignia or any subsidiary of Insignia (excluding stock options issued under the Insignia 1992 Stock Incentive Plan, as amended, and the Insignia 1995 Non-Employee Director Stock Option Plan) which are exercisable, convertible or exchangeable for or into shares of Insignia common stock, but specifically excluding the Convertible Preferred Securities. "Insignia GPs" means the general partners of the Insignia Partnerships. "Insignia Merger" means the merger of Insignia with and into AIMCO. "Insignia Merger Agreement" means the merger agreement between AIMCO, the AIMCO Operating Partnership, Insignia and Holdings pursuant to which Insignia will be merged with and into AIMCO. "Insignia Partnerships" means the limited partnerships whose general partners are affiliates of Insignia. "Insignia Reorganization" means the transfer of certain assets and liabilities of Insignia to the Unconsolidated Subsidiaries. A-7 100 "Interested Stockholder" means any person who beneficially owns 10% or more of the voting power of the corporation's shares or an affiliate of the corporation who, at any time within the two-year period 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. "IPT" means Insignia Properties Trust, a Maryland REIT, which is a majority owned subsidiary of Insignia. "IPT Shares" means the shares of beneficial interest of IPT, par value $.01 per share. "IRS" means the Internal Revenue Service. "J.W. English Companies" means J.W. English, a Houston, Texas-based real estate syndicator and developer, and certain affiliated entities. "LDP" means a limited denial of participation by any HUD office. "Liquidating Event" means any of the following: (i) December 31, 2093; (ii) an event of withdrawal, as defined in the Delaware LP Act (including, without limitation, bankruptcy), of the sole AIMCO GP 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 OP Unitholders 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 AIMCO GP; (iii) an election to dissolve the AIMCO Operating Partnership made by the AIMCO GP in its sole and absolute discretion, with or without the consent of the OP Unitholders; (iv) entry of a decree of judicial dissolution of the AIMCO Operating Partnership pursuant to the provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or (vi) the Redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special Limited Partner) of all Common OP Units other than Common OP Units held by the AIMCO GP or the Special Limited Partner. "Majority in Interest" means OP Unitholders (other than (i) the Special Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))) holding more than fifty percent (50%) of the outstanding Common OP Units held by all OP Unitholders (other than (i) the Special Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))). "Managed Properties" means the apartment properties managed by AIMCO for third party owners and affiliates. "Management Subsidiaries" means PAMS LP and the other subsidiaries of the Company that manage the Managed Properties. "March Hedge" means the interest rate hedging agreement entered into in March 1997 between the Company and an investment banking company in anticipation of certain indebtedness. "Measurement Period" means the January 1, 1998 to the Valuation Date. "MGCL" means the Maryland General Corporation Law. "Minimum Return" means a 30% cumulative Total Return over three years. "NAREIT" means the National Association of Real Estate Investment Trusts. "NHP" means NHP Incorporated. "NHP Properties" means the 534 multifamily apartment properties containing 87,689 apartment units, a captive insurance subsidiary and certain related assets. A-8 101 "NHP Real Estate Companies" means a group of companies previously owned by NHP that hold interests in the NHP Properties. "NHP Real Estate Reorganization" means the reorganization of the Company's interests in the NHP Real Estate Companies. "Non-U.S. Holder" means any person other than (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia, (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust if a United States court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. "NYSE" means the New York Stock Exchange. "OP Merger" means the merger of the Ambassador Operating Partnership with and into the AIMCO Operating Partnership. "OP Unitholder" means a holder of OP Units. "OP Units" means Preferred OP Units and the Common OP Units. "Owned Properties" means the apartment properties owned or controlled by AIMCO. "Ownership Limit" means the limit by the AIMCO Charter of direct or constructive ownership of shares of Class A Common Stock representing more than 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the combined total of outstanding shares of AIMCO's Class A Common Stock or Class B Common Stock by any person. "Partner" means the AIMCO GP or an OP Unitholder, and "Partners" means the AIMCO GP and the OP Unitholders. "Partnership Tax Items" means partnership tax items including partnership income, gains, losses, deductions, and credits. "Preferred OP Units" means Partnership Preferred Units of the AIMCO Operating Partnership. "Preferred Share Investor" means the institutional investor to whom AIMCO issued 750,000 shares of Class B Preferred Stock in a private transaction. "Preferred Share Purchase Agreement" means the agreement pursuant to which AIMCO issued the Class B Preferred Stock. "Preferred Stock" means the preferred stock of AIMCO, par value $.01 per share. "Prospectus" means this prospectus, as it may be further supplemented or amended from time to time. "Prospectus Supplement" means a prospectus supplement accompanying the Prospectus. "PTP Regulations" means the Treasury Regulations generally effective for taxable years beginning after December 31, 1995. "publicly traded partnership" means a partnership classified as a publicly traded partnership for federal income tax purposes. "qualifying income" means, in general, income which includes interest, dividends, real property rents (as defined by Section 856 of the Code) and gain from the sale or disposition of real property. "Redemption" means to redeem all or a portion of the Common OP Units held by a Common OP Unitholder and certain Assignees in exchange for a cash amount based on the value of shares of Class A Common Stock. A-9 102 "Registration Statement" means the registration statement on Form S-4 of which the Prospectus forms a part, together with all amendments and exhibits, filed by AIMCO and the AIMCO Operating Partnership with the Commission. "REIT" means a real estate investment trust. "REIT Requirements" means the requirements for qualifying a REIT under the Code. "Schedule K-1" means the report which the AIMCO Operating Partnership furnishes to each OP Unitholder that sets forth his allocable share of income, gains, losses and deductions. "Section 751 Assets" has the meaning given to such term in the Code. "Section 8" means Section 8 of the United States Housing Act of 1937. "Securities" means the Preferred Stock, the Class A Common Stock and the OP Units. "Securities Act" means the Securities Act of 1933, as amended. "Securityholders" means persons who may receive from AIMCO or the AIMCO Operating Partnership Securities covered by the Registration Statement in acquisitions and who may be entitled to offer such Securities under circumstances requiring the use of a Prospectus. "September Hedge" means the interest rate agreement entered into in September 1997 between the Company and an investment banking company. "Special Dividend" means the special dividend of $50 million in the aggregate of which holders of Class E Preferred Stock will be entitled to receive a pro rata share. "Special Limited Partner" means AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership. "Subsidiary Partnerships" means other limited partnerships and limited liability companies in which AIMCO has a controlling interest. "Tax Matters Partner" means AIMCO GP, which is authorized, but not required, to take certain actions on behalf of the AIMCO Operating Partnership with respect to tax matters. "Tender Offer English Partnerships" means the 25 English Partnerships that received English Tender Offers. "Terminating Capital Transaction" means 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. "TMT" means tentative minimum tax. "TNRCC" means the Texas Natural Resources Conservation Commission. "Total Return" means, for any security and for any period, the cumulative total return for such security over such period, as measured by (i) the sum of (a) the cumulative amount of dividends paid in respect of such security for such period (assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date), and (b) an amount equal to (x) the security price at the end of such period, minus (y) the security price at the beginning of such period, divided by (ii) the security price at the beginning of the measurement period; provided, however, that if the foregoing calculation results in a negative number, the "Total Return" shall be equal to zero. "Treasury Regulations" means the Treasury regulations promulgated under the Code. "UBTI" means unrelated business taxable income. A-10 103 "UBTI Percentage" means 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. "Unconsolidated Partnership" means a limited partnership in which the AIMCO Operating Partnership will hold a 99% limited partnership interest and certain directors and officers of AIMCO will, directly or indirectly, hold a 1% general partner interest. "Unconsolidated Subsidiaries" means the unconsolidated subsidiaries of AIMCO, which from time to time, the Company has organized in order to satisfy certain requirements for AIMCO's continued qualification as a REIT. "Underlying Partnership" means another partnership other than the AIMCO Operating Partnership. "USRPI" means a United States Real Property Interest. "USRPI Capital Gains" means a distribution made by AIMCO to a Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs such as the properties beneficially owned by AIMCO. "Valuation Date" means the date that is the earlier of (i) January 1, 2001, or (ii) the date on which a change of control occurs. "voting stock" means the stock entitled to be cast generally in the election of directors. "Washington Mortgage" means Washington Mortgage Financial Group, Ltd. "WMF Credit Facility" means the $50 million secured revolving credit facility entered into in February 1998 between the Company and Washington Mortgage. "Year-End Test Date" means December 31 of each of the years 1994 through 1998. A-11 104 APPENDIX B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P. A DELAWARE LIMITED PARTNERSHIP ------------------------ THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. DATED AS OF JULY 29, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 105 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINED TERMS............................................... B-1 ARTICLE 2 ORGANIZATIONAL MATTERS...................................... B-14 Section 2.1 Organization.................................. B-14 Section 2.2 Name.......................................... B-14 Section 2.3 Registered Office and Agent; Principal Office...................................................... B-14 Section 2.4 Power of Attorney............................. B-14 Section 2.5 Term.......................................... B-15 ARTICLE 3 PURPOSE..................................................... B-15 Section 3.1 Purpose and Business.......................... B-15 Section 3.2 Powers........................................ B-16 Section 3.3 Partnership Only for Purposes Specified....... B-16 Section 3.4 Representations and Warranties by the Parties..................................................... B-16 ARTICLE 4 CAPITAL CONTRIBUTIONS....................................... B-18 Section 4.1 Capital Contributions of the Partners......... B-18 Section 4.2 Issuances of Additional Partnership Interests................................................... B-18 Section 4.3 Additional Funds.............................. B-19 Section 4.4 Stock Option Plans............................ B-20 Section 4.5 No Interest; No Return........................ B-21 Section 4.6 Conversion of Junior Shares................... B-21 ARTICLE 5 DISTRIBUTIONS............................................... B-21 Section 5.1 Requirement and Characterization of Distributions............................................... B-21 Section 5.2 Distributions in Kind......................... B-21 Section 5.3 Amounts Withheld.............................. B-22 Section 5.4 Distributions Upon Liquidation................ B-22 Section 5.5 Restricted Distributions...................... B-22 ARTICLE 6 ALLOCATIONS................................................. B-22 Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.................................. B-22 Section 6.2 General Allocations........................... B-22 Section 6.3 Additional Allocation Provisions.............. B-22 Section 6.4 Tax Allocations............................... B-24 ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS....................... B-24 Section 7.1 Management.................................... B-24 Section 7.2 Certificate of Limited Partnership............ B-27 Section 7.3 Restrictions on General Partner's Authority... B-27 Section 7.4 Reimbursement of the General Partner.......... B-29 Section 7.5 Outside Activities of the Previous General Partner and the General Partner............................. B-29
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PAGE ---- Section 7.6 Contracts with Affiliates..................... B-30 Section 7.7 Indemnification............................... B-30 Section 7.8 Liability of the General Partner.............. B-32 Section 7.9 Other Matters Concerning the General Partner..................................................... B-32 Section 7.10 Title to Partnership Assets................... B-33 Section 7.11 Reliance by Third Parties..................... B-33 ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................. B-34 Section 8.1 Limitation of Liability....................... B-34 Section 8.2 Management of Business........................ B-34 Section 8.3 Outside Activities of Limited Partners........ B-34 Section 8.4 Return of Capital............................. B-34 Section 8.5 Rights of Limited Partners Relating to the Partnership................................................. B-34 Section 8.6 Redemption Rights of Qualifying Parties....... B-35 Section 8.7 Partnership Right to Call Limited Partner Interests................................................... B-38 ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...................... B-38 Section 9.1 Records and Accounting........................ B-38 Section 9.2 Fiscal Year................................... B-39 Section 9.3 Reports....................................... B-39 ARTICLE 10 TAX MATTERS................................................. B-39 Section 10.1 Preparation of Tax Returns.................... B-39 Section 10.2 Tax Elections................................. B-39 Section 10.3 Tax Matters Partner........................... B-39 Section 10.4 Withholding................................... B-40 ARTICLE 11 TRANSFERS AND WITHDRAWALS................................... B-41 Section 11.1 Transfer...................................... B-41 Section 11.2 Transfer of General Partner's Partnership Interest.................................................... B-41 Section 11.3 Limited Partners' Rights to Transfer.......... B-42 Section 11.4 Substituted Limited Partners.................. B-44 Section 11.5 Assignees..................................... B-44 Section 11.6 General Provisions............................ B-44 ARTICLE 12 ADMISSION OF PARTNERS....................................... B-46 Section 12.1 Admission of Successor General Partner........ B-46 Section 12.2 Admission of Additional Limited Partners...... B-46 Section 12.3 Amendment of Agreement and Certificate of Limited Partnership........................... B-46 Section 12.4 Admission of Initial Limited Partners......... B-46 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.................... B-47 Section 13.1 Dissolution................................... B-47 Section 13.2 Winding Up.................................... B-47
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PAGE ---- Section 13.3 Deemed Distribution and Recontribution........ B-48 Section 13.4 Rights of Limited Partners.................... B-48 Section 13.5 Notice of Dissolution......................... B-49 Section 13.6 Cancellation of Certificate of Limited Partnership................................................. B-49 Section 13.7 Reasonable Time for Winding-Up................ B-49 ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS.................................................... B-49 Section 14.1 Procedures for Actions and Consents of Partners.................................................... B-49 Section 14.2 Amendments.................................... B-49 Section 14.3 Meetings of the Partners...................... B-49 ARTICLE 15 GENERAL PROVISIONS.......................................... B-50 Section 15.1 Addresses and Notice.......................... B-50 Section 15.2 Titles and Captions........................... B-50 Section 15.3 Pronouns and Plurals.......................... B-50 Section 15.4 Further Action................................ B-50 Section 15.5 Binding Effect................................ B-50 Section 15.6 Waiver........................................ B-50 Section 15.7 Counterparts.................................. B-51 Section 15.8 Applicable Law................................ B-51 Section 15.9 Entire Agreement.............................. B-51 Section 15.10 Invalidity of Provisions...................... B-51 Section 15.11 Limitation to Preserve REIT Status............ B-51 Section 15.12 No Partition.................................. B-52 Section 15.13 No Third-Party Rights Created Hereby.......... B-52
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PAGE ---- EXHIBIT A PARTNERS AND PARTNERSHIP UNITS.............................. A-1 EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR........................ B-1 EXHIBIT C LIST OF DESIGNATED PARTIES.................................. C-1 EXHIBIT D INTENTIONALLY OMITTED....................................... D-1 EXHIBIT E NOTICE OF REDEMPTION........................................ E-1 EXHIBIT F FORM OF UNIT CERTIFICATE.................................... F-1 EXHIBIT G PARTNERSHIP UNIT DESIGNATION OF THE CLASS B PARTNERSHIP PREFERRED UNITS............................................. G-1 EXHIBIT H PARTNERSHIP UNIT DESIGNATION OF THE CLASS C PARTNERSHIP PREFERRED UNITS............................................. H-1 EXHIBIT I PARTNERSHIP UNIT DESIGNATION OF THE CLASS D PARTNERSHIP PREFERRED UNITS............................................. I-1 EXHIBIT J PARTNERSHIP UNIT DESIGNATION OF THE CLASS E PARTNERSHIP PREFERRED UNITS............................................. J-1 EXHIBIT K PARTNERSHIP UNIT DESIGNATION OF THE CLASS I HIGH PERFORMANCE PARTNERSHIP UNITS........................................... K-1 EXHIBIT L PARTNERSHIP UNIT DESIGNATION OF THE CLASS G PARTNERSHIP PREFERRED UNITS............................................. L-1 EXHIBIT M PARTNERSHIP UNIT DESIGNATION OF THE CLASS H PARTNERSHIP PREFERRED UNITS............................................. M-1
NONE OF THE ABOVE EXHIBITS ARE INCLUDED IN THIS PROSPECTUS. THEY ARE AVAILABLE UPON REQUEST OF AIMCO PROPERTIES, L.P. iv 109 THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P. THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P., dated as of July 29, 1994, and amended and restated as of October 1, 1998, is entered into by and among Apartment Investment and Management Company, a Maryland corporation (the "Previous General Partner"), AIMCO-GP, Inc., a Delaware corporation (the "General Partner"), AIMCO-LP, Inc., a Delaware corporation (the "Special Limited Partner"), and the other Limited Partners (as defined below). WHEREAS, the General Partner has submitted, and the Limited Partners have approved, an amendment and restatement of the Agreement of Limited Partnership of AIMCO Properties, L.P. on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINED TERMS The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "Act" means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute. "Actions" has the meaning set forth in Section 7.7 hereof. "Additional Funds" has the meaning set forth in Section 4.3.A hereof. "Additional Limited Partner" means a Person who is admitted to the Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2 hereof and who is shown as such on the books and records of the Partnership. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) decrease such deficit by any amounts that such Partner is obligated to restore pursuant to this Agreement or by operation of law upon liquidation of such Partner's Partnership Interest or is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) increase such deficit by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of "Adjusted Capital Account Deficit" is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Adjustment Factor" means 1.0; provided, however, that in the event that: (i) the Previous General Partner (a) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (b) splits or subdivides its outstanding REIT Shares or (c) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for B-1 110 such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination; (ii) the Previous General Partner distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares) at a price per share less than the Value of a REIT Share on the record date for such distribution (each a "Distributed Right"), then the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date plus the maximum number of REIT Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date plus a fraction (1) the numerator of which is the maximum number of REIT Shares purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2) the denominator of which is the Value of a REIT Share as of the record date; provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fraction; and (iii) the Previous General Partner shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) above), which evidences of indebtedness or assets relate to assets not received by the Previous General Partner, the General Partner and/or the Special Limited Partner pursuant to a pro rata distribution by the Partnership, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business on the date fixed for determination of shareholders entitled to receive such distribution by a fraction (i) the numerator shall be such Value of a REIT Share on the date fixed for such determination and (ii) the denominator shall be the Value of a REIT Share on the dates fixed for such determination less the then fair market value (as determined by the General Partner, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share. Any adjustments to the Adjustment Factor shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event, provided, however, that any Limited Partner may waive, by written notice to the General Partner, the effect of any adjustment to the Adjustment Factor applicable to the Partnership Common Units held by such Limited Partner, and, thereafter, such adjustment will not be effective as to such Partnership Common Units. For illustrative purposes, examples of adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto. "Affiliate" means, with respect to any Person, any Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" means this Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., as it may be amended, supplemented or restated from time to time. "Applicable Percentage" has the meaning set forth in Section 8.6.B hereof. "Appraisal" means, with respect to any assets, the written opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner in good faith. Such opinion may B-2 111 be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership. "Assignee" means a Person to whom one or more Partnership Common Units have been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5 hereof. "Available Cash" means, with respect to any period for which such calculation is being made, (i) the sum, without duplication, of: (1) the Partnership's Net Income or Net Loss (as the case may be) for such period, (2) Depreciation and all other noncash charges to the extent deducted in determining Net Income or Net Loss for such period, (3) the amount of any reduction in reserves of the Partnership referred to in clause (ii)(6) below (including, without limitation, reductions resulting because the General Partner determines such amounts are no longer necessary), (4) the excess, if any, of the net cash proceeds from the sale, exchange, disposition, financing or refinancing of Partnership property for such period over the gain (or loss, as the case may be) recognized from such sale, exchange, disposition, financing or refinancing during such period (excluding Terminating Capital Transactions), and (5) all other cash received (including amounts previously accrued as Net Income and amounts of deferred income) or any net amounts borrowed by the Partnership for such period that was not included in determining Net Income or Net Loss for such period; (ii) less the sum, without duplication, of: (1) all principal debt payments made during such period by the Partnership, (2) capital expenditures made by the Partnership during such period, (3) investments in any entity (including loans made thereto) to the extent that such investments are not otherwise described in clause (ii)(1) or clause (ii)(2) above, (4) all other expenditures and payments not deducted in determining Net Income or Net Loss for such period (including amounts paid in respect of expenses previously accrued), (5) any amount included in determining Net Income or Net Loss for such period that was not received by the Partnership during such period, (6) the amount of any increase in reserves (including, without limitation, working capital reserves) established during such period that the General Partner determines are necessary or appropriate in its sole and absolute discretion, and (7) any amount distributed or paid in redemption of any Limited Partner Interest or Partnership Units including, without limitation, any Cash Amount paid. Notwithstanding the foregoing, Available Cash shall not include (a) any cash received or reductions in reserves, or take into account any disbursements made, or reserves established, after dissolution and the commencement of the liquidation and winding up of the Partnership or (b) any Capital Contributions, whenever received. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Denver, Colorado, Los Angeles, California or New York, New York are authorized or required by law to close. B-3 112 "Capital Account" means, with respect to any Partner, the Capital Account maintained by the General Partner for such Partner on the Partnership's books and records in accordance with the following provisions: (a) To each Partner's Capital Account, there shall be added such Partner's Capital Contributions, such Partner's distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 hereof, and the principal amount of any Partnership liabilities assumed by such Partner or that are secured by any property distributed to such Partner. (b) From each Partner's Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 hereof, and the principal amount of any liabilities of such Partner assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership. (c) In the event any interest in the Partnership is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest. (d) In determining the principal amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. (e) The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the General Partner may make such modification provided that such modification will not have a material effect on the amounts distributable to any Partner without such Partner's Consent. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2. "Capital Contribution" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Contributed Property that such Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or 4.3 hereof or is deemed to contribute pursuant to Section 4.4 hereof. "Cash Amount" means the lesser of (a) an amount of cash equal to the product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount determined as of the applicable Valuation Date or (b) in the case of a Declination followed by a Public Offering Funding, the Public Offering Funding Amount. "Certificate" means the Certificate of Limited Partnership of the Partnership filed in the office of the Secretary of State of the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act. "Charter" means the Articles of Amendment and Restatement of the Previous General Partner filed with the Maryland State Department of Assessments and Taxation on July 19, 1994, as amended, supplemented or restated from time to time. "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. B-4 113 "Company Employee" has the meaning ascribed thereto in the Previous General Partner's 1994 Stock Option Plan. "Consent" means the consent to, approval of, or vote in favor of a proposed action by a Partner given in accordance with Article 14 hereof. "Consent of the Limited Partners" means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by a Majority in Interest of the Limited Partners, in their reasonable discretion. "Contributed Property" means each Property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership (or deemed contributed to the Partnership on termination and reconstitution thereof pursuant to Code Section 708). "Controlled Entity" means, as to any Limited Partner, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Limited Partner or such Limited Partner's Family Members, (b) any trust, whether or not revocable, of which such Limited Partner or such Limited Partner's Family Members are the sole beneficiaries, (c) any partnership of which such Limited Partner is the managing partner and in which such Limited Partner or such Limited Partner's Family Members hold partnership interests representing at least twenty-five percent (25%) of such partnership's capital and profits and (d) any limited liability company of which such Limited Partner is the manager and in which such Limited Partner or such Limited Partner's Family Members hold membership interests representing at least twenty-five percent (25%) of such limited liability company's capital and profits. "Controlling Person" means any Person, whatever his or her title, who performs executive or senior management functions for the General Partner or its Affiliates similar to those of directors, executive management and senior management, or any Person who either holds a two percent (2%) or more equity interest in the General Partner or its Affiliates, or has the power to direct or cause the direction of the General Partner or its Affiliates, whether through the ownership of voting securities, by contract or otherwise, or, in the absence of a specific role or title, any Person having the power to direct or cause the direction of the management-level employees and policies of the General Partner or its Affiliates. It is not intended that every Person who carries a title such as vice president, senior vice president, secretary or treasurer be included in the definition of "Controlling Person." "Cut-Off Date" means the fifth (5th) Business Day after the General Partner's receipt of a Notice of Redemption. "Debt" means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person's interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized. "Declination" has the meaning set forth in Section 8.6.D hereof. "Depreciation" means, for each Fiscal Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction B-5 114 for such year or period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner. "Designated Parties" means the Persons designated on Exhibit C attached hereto. The General Partner may, in its sole and absolute discretion, amend Exhibit C to add Persons to be designated as Designated Parties. "Distributed Right" has the meaning set forth in the definition of "Adjustment Factor." "Effective Date" means July 29, 1994. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Family Members" means, as to a Person that is an individual, such Person's spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries. "Fiscal Year" means the fiscal year of the Partnership, which shall be the calendar year. "Funding Debt" means any Debt incurred by or on behalf of the Previous General Partner, the General Partner or the Special Limited Partner for the purpose of providing funds to the Partnership. "General Partner" means AIMCO-GP, Inc., a Delaware corporation, and its successors and assigns, as the general partner of the Partnership in their capacities as general partner of the Partnership. "General Partner Interest" means the Partnership Interest held by the General Partner, which Partnership Interest is an interest as a general partner under the Act. A General Partner Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or any other Partnership Units. "General Partner Loan" has the meaning set forth in Section 4.3.D hereof. "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market values of such assets as determined by the General Partner and agreed to by the contributing Partner. In any case in which the General Partner and the contributing Partner are unable to agree as to the gross fair market value of any contributed asset or assets, such gross fair market value shall be determined by Appraisal. (b) The Gross Asset Values of all Partnership assets immediately prior to the occurrence of any event described in clause (i), clause (ii), clause (iii), clause (iv) or clause (v) hereof shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, as of the following times: (i) the acquisition of an additional interest in the Partnership (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.2 hereof or contributions or deemed contributions by the General Partner pursuant to Section 4.2 hereof) by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; B-6 115 (iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); (iv) upon the admission of a successor General Partner pursuant to Section 12.1 hereof; and (v) at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2. (c) The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner provided that, if the distributee is the General Partner or if the distributee and the General Partner cannot agree on such a determination, such gross fair market value shall be determined by Appraisal. (d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d). (e) If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses. "Holder" means either (a) a Partner or (b) an Assignee, owning a Partnership Unit, that is treated as a member of the Partnership for federal income tax purposes. "Incapacity" or "Incapacitated" means, (i) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate; (ii) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Partner that is an estate, the distribution by the fiduciary of the estate's entire interest in the Partnership; (v) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner's creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner's properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner's consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any such stay. B-7 116 "Indemnitee" means (i) any Person made a party to a proceeding by reason of its status as (A) the Previous General Partner or the General Partner or (B) a director of the Previous General Partner or the General Partner or an officer or employee of the Partnership or the Previous General Partner or the General Partner and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion. "Independent Director" has the meaning ascribed thereto in the Previous General Partner's 1994 Stock Option Plan. "Interest" means interest, original issue discount and other similar payments or amounts paid by the Partnership for the use or forbearance of money. "IRS" means the Internal Revenue Service, which administers the internal revenue laws of the United States. "Junior Share" means a share of the Previous General Partner's Class B Common Stock, par value $.01 per share. "Limited Partner" means the Special Limited Partner and any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership. "Limited Partner Interest" means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units. "Liquidating Event" has the meaning set forth in Section 13.1 hereof. "Liquidator" has the meaning set forth in Section 13.2.A hereof. "Majority in Interest of the Limited Partners" means Limited Partners (other than (i) the Special Limited Partner and (ii) any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by the (a) General Partner or (b) any REIT as to which the General Partner is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))) holding more than fifty percent (50%) of the outstanding Partnership Common Units and Class I High Performance Partnership Units held by all Limited Partners (other than (i) the Special Limited Partner and (ii) any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by (a) the General Partner or (b) any REIT as to which the General Partner is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))). "Net Income" or "Net Loss" means, for each Fiscal Year of the Partnership, an amount equal to the Partnership's taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be added to (or subtracted from, as the case may be) such taxable income (or loss); (b) Any expenditure of the Partnership described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss," shall be subtracted from (or added to, as the case may be) such taxable income (or loss); B-8 117 (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of "Gross Asset Value," the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss; (d) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year; (f) To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and (g) Notwithstanding any other provision of this definition of "Net Income" or "Net Loss," any item that is specially allocated pursuant to Section 6.3 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3 hereof shall be determined by applying rules analogous to those set forth in this definition of "Net Income" or "Net Loss." "New Securities" means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares or Preferred Shares, excluding Junior Shares, Preferred Shares and grants under the Previous General Partner's Stock Option Plans, or (ii) any Debt issued by the Previous General Partner that provides any of the rights described in clause (i). "Nonrecourse Deductions" has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c). "Nonrecourse Liability" has the meaning set forth in Regulations Section 1.752-1(a)(2). "Notice of Redemption" means the Notice of Redemption substantially in the form of Exhibit E attached to this Agreement. "Optionee" means a Company Employee, Partnership Employee or Independent Director to whom a stock option is granted under the Previous General Partner's Stock Option Plans. "Original Limited Partners" means the Persons listed as the Limited Partners on Exhibit A originally attached to this Agreement, without regard to any amendment thereto, and does not include any Assignee or other transferee, including, without limitation, any Substituted Limited Partner succeeding to all or any part of the Partnership Interest of any such Person. "Ownership Limit" means the applicable restriction on ownership of shares of the Previous General Partner imposed under the Charter. "Partner" means the General Partner or a Limited Partner, and "Partners" means the General Partner and the Limited Partners. "Partner Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3). B-9 118 "Partner Nonrecourse Debt" has the meaning set forth in Regulations Section 1.704-2(b)(4). "Partner Nonrecourse Deductions" has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2). "Partnership" means the limited partnership formed under the Act and pursuant to this Agreement, and any successor thereto. "Partnership Common Unit" means a fractional share of the Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but does not include any Partnership Preferred Unit or any other Partnership Unit specified in a Partnership Unit Designation as being other than a Partnership Common Unit; provided, however, that the General Partner Interest and the Limited Partner Interests shall have the differences in rights and privileges as specified in this Agreement. The ownership of Partnership Common Units may (but need not, in the sole and absolute discretion of the General Partner) be evidenced by the form of certificate for Partnership Common Units attached hereto as Exhibit F. "Partnership Employee" has the meaning ascribed thereto in the Previous General Partner's 1994 Stock Option Plan. "Partnership Interest" means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units. "Partnership Minimum Gain" has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d). "Partnership Preferred Unit" means a fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.2 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Partnership Common Units. "Partnership Record Date" means the record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.1 hereof, which record date shall generally be the same as the record date established by the Previous General Partner for a distribution to its shareholders of some or all of its portion of such distribution. "Partnership Subsidiary" has the meaning ascribed thereto in the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan. "Partnership Unit" shall mean a Partnership Common Unit, a Partnership Preferred Unit or any other fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.2 hereof. "Partnership Unit Designation" shall have the meaning set forth in Section 4.2 hereof. "Percentage Interest" means, as to each Partner, its interest in the Partnership Units as determined by dividing the Partnership Units owned by such Partner by the total number of Partnership Units then outstanding. "Permitted Transfer" has the meaning set forth in Section 11.3.A hereof. "Person" means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity. "Pledge" has the meaning set forth in Section 11.3.A hereof. B-10 119 "Preferred Share" means a share of capital stock of the Previous General Partner now or hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the REIT Shares. "Previous General Partner" means Apartment Investment and Management Company, a Maryland corporation. "Previous General Partner's 1994 Stock Option Plan" means the 1994 Stock Option Plan of Apartment Investment and Management Company and Affiliates. "Previous General Partner's Stock Option Plans" means the Previous General Partner's 1994 Stock Option Plan, the Apartment Investment and Management Company 1996 Stock Award and Incentive Plan, the Amended and Restated Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan, the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan and any other stock option plan adopted by the Previous General Partner. "Primary Offering Notice" has the meaning set forth in Section 8.6.F(4) hereof. "Properties" means any assets and property of the Partnership such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Partnership may hold from time to time. "Public Offering Funding" has the meaning set forth in Section 8.6.D(2) hereof. "Public Offering Funding Amount" means the dollar amount equal to (i) the product of (x) the number of Registrable Shares sold in a Public Offering Funding and (y) the public offering price per share of such Registrable Shares in such Public Offering Funding, less (ii) the aggregate underwriting discounts and commissions in such Public Offering Funding. "Qualified Transferee" means an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. "Qualifying Party" means (a) an Original Limited Partner, (b) an Additional Limited Partner, (c) a Designated Party that is either a Substituted Limited Partner or an Assignee, (d) a Family Member, or a lending institution as the pledgee of a Pledge, who is the transferee in a Permitted Transfer or (e) with respect to any Notice of Redemption delivered to the General Partner within the time period set forth in Section 11.3.A(4) hereof, a Substituted Limited Partner succeeding to all or part of the Limited Partner Interest of (i) an Original Limited Partner, (ii) an Additional Limited Partner, (iii) a Designated Party that is either a Substituted Limited Partner or an Assignee or (iv) a Family Member, or a lending institution who is the pledgee of a Pledge, who is the transferee in a Permitted Transfer. "Redeemable Units" means those Partnership Common Units issued to the Original Limited Partners as of the Effective Date together with such additional Partnership Common Units that, after the Effective Date, may be issued to Additional Limited Partners pursuant to Section 4.2 hereof. "Redemption" has the meaning set forth in Section 8.6.A hereof. "Registrable Shares" has the meaning set forth in Section 8.6.D(2) hereof. "Regulations" means the applicable income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Regulatory Allocations" has the meaning set forth in Section 6.3.B(viii) hereof. "REIT" means a real estate investment trust qualifying under Code Section 856. "REIT Partner" means (a) a Partner that is, or has made an election to qualify as, a REIT, (b) any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) of any Partner that is, or has made an election to qualify as, a REIT and (c) any Partner, including, without limitation, the General Partner B-11 120 and the Special Limited Partner, that is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) of a REIT. "REIT Payment" has the meaning set forth in Section 15.11 hereof. "REIT Requirements" has the meaning set forth in Section 5.1.A hereof. "REIT Share" means a share of the Previous General Partner's Class A Common Stock, par value $.01 per share. Where relevant in this Agreement, "REIT Shares" includes shares of the Previous General Partner's Class A Common Stock, par value $.01 per share, issued upon conversion of Preferred Shares or Junior Shares. "REIT Shares Amount" means a number of REIT Shares equal to the product of (a) the number of Tendered Units and (b) the Adjustment Factor; provided, however, that, in the event that the Previous General Partner issues to all holders of REIT Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the Previous General Partner's shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "Rights"), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the REIT Shares Amount shall also include such Rights that a holder of that number of REIT Shares would be entitled to receive, expressed, where relevant hereunder, in a number of REIT Shares determined by the Previous General Partner in good faith. "Related Party" means, with respect to any Person, any other Person whose ownership of shares of the Previous General Partner's capital stock would be attributed to the first such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)). "Rights" has the meaning set forth in the definition of "REIT Shares Amount." "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Single Funding Notice" has the meaning set forth in Section 8.6.D(3) hereof. "Special Limited Partner" means AIMCO-LP, Inc., a Delaware corporation. "Specified Redemption Date" means the later of (a) the tenth (10th) Business Day after the receipt by the General Partner of a Notice of Redemption or (b) in the case of a Declination followed by a Public Offering Funding, the Business Day next following the date of the closing of the Public Offering Funding; provided, however, that no Specified Redemption Date shall occur during the first Twelve-Month Period; provided, further, that the Specified Redemption Date, as well as the closing of Redemption, or an acquisition of Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, on any Specified Redemption Date, may be deferred, in the General Partner's sole and absolute discretion, for such time (but in any event not more than one hundred fifty (150) days in the aggregate) as may reasonably be required to effect, as applicable, (i) a Public Offering Funding or other necessary funding arrangements, (ii) compliance with the Securities Act or other law (including, but not limited to, (a) state "blue sky" or other securities laws and (b) the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii) satisfaction or waiver of other commercially reasonable and customary closing conditions and requirements for a transaction of such nature. "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person; provided, however, that, with respect to the Partnership, "Subsidiary" means solely a partnership or limited liability company (taxed, for federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation) of which the Partnership is a member unless the General Partner has received an unqualified opinion from independent counsel of recognized standing, or a ruling from the IRS, that the ownership of shares of stock of a corporation or other entity will B-12 121 not jeopardize the Previous General Partner's status as a REIT or the General Partner's or the Special Limited Partner's status as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)), in which event the term "Subsidiary" shall include the corporation or other entity which is the subject of such opinion or ruling. "Substituted Limited Partner" means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4 hereof. "Tax Items" has the meaning set forth in Section 6.4.A hereof. "Tendered Units" has the meaning set forth in Section 8.6.A hereof. "Tendering Party" has the meaning set forth in Section 8.6.A hereof. "Terminating Capital Transaction" means any sale or other disposition of all or substantially all of the assets of the 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 Partnership. "Transfer," when used with respect to a Partnership Unit, or all or any portion of a Partnership Interest, means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided, however, that when the term is used in Article 11 hereof, "Transfer" does not include (a) any Redemption of Partnership Common Units by the Partnership, or acquisition of Tendered Units by the Previous General Partner, pursuant to Section 8.6 hereof or (b) any redemption of Partnership Units pursuant to any Partnership Unit Designation. The terms "Transferred" and "Transferring" have correlative meanings. "Twelve-Month Period" means (a) as to an Original Limited Partner or any successor-in-interest that is a Qualifying Party, a twelve-month period ending on the day before the first (1st) anniversary of the Effective Date or on the day before a subsequent anniversary thereof and (b) as to any other Qualifying Party, a twelve-month period ending on the day before the first (1st) anniversary of such Qualifying Party's becoming a Holder of Partnership Common Units or on the day before a subsequent anniversary thereof; provided, however, that the General Partner may, in its sole and absolute discretion, by written agreement with a Qualifying Party, shorten the first Twelve-Month Period to a period of less than twelve (12) months with respect to a Qualifying Party other than an Original Limited Partner or successor-in-interest. "Unitholder" means the General Partner or any Holder of Partnership Units. "Valuation Date" means the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day. "Value" means, on any Valuation Date with respect to a REIT Share, the average of the daily market prices for ten (10) consecutive trading days immediately preceding the Valuation Date (except that, as provided in Section 4.4.C. hereof, the market price for the trading day immediately preceding the date of exercise of a stock option under the Previous General Partner's Stock Option Plans shall be substituted for such average of daily market prices for purposes of Section 4.4 hereof). The market price for any such trading day shall be: (i) if the REIT Shares are listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System, the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day, in either case as reported in the principal consolidated transaction reporting system, (ii) if the REIT Shares are not listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or B-13 122 (iii) if the REIT Shares are not listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported; provided, however, that, if there are no bid and asked prices reported during the ten (10) days prior to the date in question, the Value of the REIT Shares shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that the REIT Shares Amount includes Rights (as defined in the definition of "REIT Shares Amount") that a holder of REIT Shares would be entitled to receive, then the Value of such Rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. ARTICLE 2 ORGANIZATIONAL MATTERS Section 2.1 Organization. The Partnership is a limited partnership organized pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes. Section 2.2 Name. The name of the Partnership is "AIMCO Properties, L.P." The Partnership's business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners. Section 2.3 Registered Office and Agent; Principal Office. The address of the registered office of the Partnership in the State of Delaware is located at 32 Lockerman Square, Suite L-100, Dover, Delaware 19901, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office is The Prentice-Hall Corporation System, Inc. The principal office of the Partnership is located at 1873 South Bellaire Street, Denver, Colorado 80222, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable. Section 2.4 Power of Attorney. A. Each Limited Partner and each Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to: (1) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General B-14 123 Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article 11, Article 12 or Article 13 hereof or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and (2) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner, effectuate the terms or intent of this Agreement. Nothing contained herein shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article 14 hereof or as may be otherwise expressly provided for in this Agreement. B. The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner or the Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer all or any portion of such Limited Partner's or Assignee's Partnership Units or Partnership Interest and shall extend to such Limited Partner's or Assignee's heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner's or the Liquidator's request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership. Section 2.5 Term. The term of the Partnership commenced on May 16, 1994, the date that the original Certificate was filed in the office of the Secretary of State of Delaware in accordance with the Act, and shall continue until December 31, 2093 unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law. ARTICLE 3 PURPOSE Section 3.1 Purpose and Business. The purpose and nature of the Partnership is to conduct any business, enterprise or activity permitted by or under the 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 Act, or to own interests in any entity engaged in any business permitted by or under the 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 B-15 124 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 the Previous General Partner, in the sole and absolute discretion of the General Partner, at all times to be classified as a REIT. Section 3.2 Powers. A. The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership. B. Notwithstanding any other provision in this Agreement, the General Partner may cause the Partnership not to take, or to refrain from taking, any action that, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the Previous General Partner to continue to qualify as a REIT, (ii) could subject the Previous General Partner to any additional taxes under Code Section 857 or Code Section 4981 or (iii) could violate any law regulation of any governmental body or agency having jurisdiction over the Previous General Partner, the General Partner, their securities or the Partnership, unless such action (or inaction) under clause (i), clause (ii) or clause (iii) above shall have been specifically consented to by the Previous General Partner and the General Partner in writing. Section 3.3 Partnership Only for Purposes Specified. The Partnership shall be a limited partnership only for the purposes specified in Section 3.1 hereof, and this Agreement shall not be deemed to create a company, venture or partnership between or among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act. Section 3.4 Representations and Warranties by the Parties. A. Each Partner that is an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to each other Partner(s) that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Partner will not result in a breach or violation of, or a default under, any material agreement by which such Partner any of such Partner's property is bound, or any statute, regulation, order or other law to which such Partner is subject, (ii) such Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iii) such Partner does not own, directly or indirectly, (a) five percent (5%) or more of the total combined voting power of all classes of stock entitled to vote, or five percent (5%) or more of the total number of shares of all classes of stock, of any corporation that is a tenant of either (I) the Previous General Partner, the General Partner, the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member or (b) an interest of five percent (5%) or more in the assets or net profits of any tenant of either (I) the Previous General Partner, the General Partner, the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture, or limited liability company of which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. B-16 125 B. Each Partner that is not an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to each other Partner(s) that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including, without limitation, that of its general partner(s), committee(s), trustee(s), beneficiaries, directors and/or shareholder(s), as the case may be, as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, charter or bylaws, as the case may be, any material agreement by which such Partner or any of such Partner's properties or any of its partners, members, beneficiaries, trustees or shareholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Partner or any of its partners, members, trustees, beneficiaries or shareholders, as the case may be, is or are subject, (iii) such Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iv) such Partner does not own, directly or indirectly, (a) five percent (5%) or more of the total combined voting power of all classes of stock entitled to vote, or five percent (5%) or more of the total number of shares of all classes of stock, of any corporation that is a tenant of either (I) the Previous General Partner, the General Partner, the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member or (b) an interest of five percent (5%) or more in the assets or net profits of any tenant of either (I) the Previous General Partner, the General Partner the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company for which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member and (v) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. C. Each Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) represents, warrants and agrees that it has acquired and continues to hold its interest in the Partnership for its own account for investment only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, nor with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Partner further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment. D. The representations and warranties contained in Sections 3.4.A, 3.4.B and 3.4.C hereof shall survive the execution and delivery of this Agreement by each Partner (and, in the case of an Additional Limited Partner or a Substituted Limited Partner, the admission of such Additional Limited Partner or Substituted Limited Partner as a Limited Partner in the Partnership) and the dissolution, liquidation and termination of the Partnership. E. Each Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by any Partner or any employee or representative or Affiliate of any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied. B-17 126 ARTICLE 4 CAPITAL CONTRIBUTIONS Section 4.1 Capital Contributions of the Partners. The Partners have heretofore made Capital Contributions to the Partnership. Each Partner owns Partnership Units in the amount set forth for such Partner on Exhibit A, as the same may be amended from time to time by the General Partner to the extent necessary to reflect accurately sales, exchanges or other Transfers, redemptions, Capital Contributions, the issuance of additional Partnership Units, or similar events having an effect on a Partner's ownership of Partnership Units. Except as provided by law or in Section 4.2, 4.3 or 10.4 hereof, the Partners shall have no obligation or right to make any additional Capital Contributions or loans to the Partnership. Section 4.2 Issuances of Additional Partnership Interests. A. General. The General Partner is hereby authorized to cause the Partnership to issue additional Partnership Interests, in the form of Partnership Units, for any Partnership purpose, at any time or from time to time, to the Partners (including the General Partner and the Special Limited Partner) or to other Persons, and to admit such Persons as Additional Limited Partners, for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units (i) upon the conversion, redemption or exchange of any Debt, Partnership Units or other securities issued by the Partnership, (ii) for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership, and (iii) in connection with any merger of any other Person into the Partnership if the applicable merger agreement provides that Persons are to receive Partnership Units in exchange for their interests in the Person merging into the 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 the General Partner, 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 this Agreement (each, a "Partnership Unit Designation"). Without limiting the generality of the foregoing, the General Partner shall have 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 Partnership distributions; (c) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the 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. Upon the issuance of any additional Partnership Interest, the General Partner shall amend Exhibit A as appropriate to reflect such issuance. B. Issuances to the General Partner or Special Limited Partner. No additional Partnership Units shall be issued to the General Partner or the Special Limited Partner unless (i) the additional Partnership Units are issued to all Partners in proportion to their respective Percentage Interests, (ii) (a) the additional Partnership Units are (x) Partnership Common Units issued in connection with an issuance of REIT Shares, or (y) Partnership Units (other than Partnership Common Units) issued in connection with an issuance of Preferred Shares, New Securities or other interests in the Previous General Partner (other than REIT Shares), which Preferred Shares, New Securities or other interests have designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of the additional Partnership Units issued to the General Partner or the Special Limited Partner, and (b) the General Partner or the Special Limited Partner, as the case may be, contributes to the Partnership the cash proceeds or other consideration received in connection with the issuance of such REIT Shares, Preferred Shares, New Securities or other interests in the Previous General Partner, (iii) the additional Partnership Units are issued upon the conversion, redemption or exchange of Debt, Partnership Units or other securities issued by the Partnership, or (iv) the additional Partnership Units are issued pursuant to Section 4.6. B-18 127 C. No Preemptive Rights. No Person, including, without limitation, any Partner or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Partnership Interest. Section 4.3 Additional Funds. A. General. The General Partner may, at any time and from time to time, determine that the Partnership requires additional funds ("Additional Funds") for the acquisition or development of additional Properties, for the redemption of Partnership Units or for such other purposes as the General Partner may determine. Additional Funds may be obtained by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.3 without the approval of any Limited Partners. B. Additional Capital Contributions. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by accepting Capital Contributions from any Partners or other Persons and issuing additional Partnership Units in consideration therefor. C. Loans by Third Parties. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to any Person (other than the Previous General Partner, the General Partner or the Special Limited Partner) upon such terms as the General Partner determines appropriate, including making such Debt convertible, redeemable or exchangeable for Partnership Units; provided, however, that the Partnership shall not incur any such Debt if (i) breach, violation or default of such Debt would be deemed to occur by virtue of the Transfer of any Partnership Interest, or (ii) such Debt is recourse to any Partner (unless the Partner otherwise agrees). D. General Partner Loans. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt with the Previous General Partner, the General Partner or the Special Limited Partner (each, a "General Partner Loan") if (i) such Debt is, to the extent permitted by law, on substantially the same terms and conditions (including interest rate, repayment schedule, and conversion, redemption, repurchase and exchange rights) as Funding Deb incurred by the Previous General Partner, the General Partner or the Special Limited Partner, the net proceeds of which are loaned to the Partnership to provide such Additional Funds, or (ii) such Debt is on terms and conditions no less favorable to the Partnership than would be available to the Partnership from any third party; provided, however, that the Partnership shall not incur any such Debt if (a) a breach, violation or default of such Debt would be deemed to occur by virtue of the Transfer of any Partnership Interest, or (b) such Debt is recourse to any Partner (unless the Partner otherwise agrees). E. Issuance of Securities by the Previous General Partner. The Previous General Partner shall not issue any additional REIT Shares, Preferred Shares, Junior Shares or New Securities unless (i) the Previous General Partner contributes the cash proceeds or other consideration received from the issuance of such additional REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may be, and from the exercise of the rights contained in any such additional New Securities, either or both of the General Partner and the Special Limited Partner, and (ii) it or they, as the case may be, contribute such cash proceeds or other consideration to the Partnership in exchange for (x) in the case of an issuance of REIT Shares, Partnership Common Units, or (y) in the case of an issuance of Preferred Shares, Junior Shares or New Securities, Partnership Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Shares, Junior Shares or New Securities; provided, however, that notwithstanding the foregoing, the Previous General Partner may issue REIT Shares, Preferred Shares, Junior Shares or New Securities (a) pursuant to Section 4.4 or Section 8.6.B hereof, (b) pursuant to a dividend or distribution (including any stock split) of REIT Shares, Preferred Shares, Junior Shares or New Securities to all of the holders of REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may be, (c) upon a conversion, redemption or exchange of Preferred Shares, (d) upon a conversion of Junior Shares into REIT Shares, (e) upon a conversion, redemption, exchange or exercise of New Securities, or (f) in connection with an acquisition of a property or other asset to be owned, directly or indirectly, by the Previous General Partner if the General Partner determines that such acquisition is in the best interests of the Partnership. In the event of any issuance B-19 128 of additional REIT Shares, Preferred Shares, Junior Shares or New Securities by the Previous General Partner, and the contribution to the Partnership, by the General Partner or the Special Limited Partner, of the cash proceeds or other consideration received from such issuance, the Partnership shall pay the Previous General Partner's expenses associated with such issuance, including any underwriting discounts or commissions. Section 4.4 Stock Option Plans. A. Options Granted to Company Employees and Independent Directors. If at any time or from time to time, in connection with the Previous General Partner's Stock Option Plans, a stock option granted to a Company Employee or Independent Director is duly exercised: (1) The Special Limited Partner shall, as soon as practicable after such exercise, make a Capital Contribution to the Partnership in an amount equal to the exercise price paid to the Previous General Partner by such exercising party in connection with the exercise of such stock option. (2) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 4.4.A(1) hereof, the Special Limited Partner shall be deemed to have contributed to the Partnership as a Capital Contribution, in consideration of an additional Limited Partner Interest (expressed in and as additional Partnership Common Units), an amount equal to the Value of a REIT Share as of the date of exercise multiplied by the number of REIT Shares then being issued in connection with the exercise of such stock option. (3) An equitable Percentage Interest adjustment shall be made in which the Special Limited Partner shall be treated as having made a cash contribution equal to the amount described in Section 4.4.A(2) hereof. B. Options Granted to Partnership Employees. If at any time or from time to time, in connection with the Previous General Partner's Stock Option Plans, a stock option granted to a Partnership Employee is duly exercised: (1) The General Partner shall cause the Previous General Partner to sell to the Partnership, and the Partnership shall purchase from the Previous General Partner, the number of REIT Shares as to which such stock option is being exercised. The purchase price per REIT Share for such sale of REIT Shares to the Partnership shall be the Value of a REIT Share as of the date of exercise of such stock option. (2) The Partnership shall sell to the Optionee (or if the Optionee is an employee of a Partnership Subsidiary, the Partnership shall sell to such Partnership Subsidiary, which in turn shall sell to the Optionee), for a cash price per share equal to the Value of a REIT Share at the time of the exercise, the number of REIT Shares equal to (a) the exercise price paid to the Previous General Partner by the exercising party in connection with the exercise of such stock option divided by (b) the Value of a REIT Share at the time of such exercise. (3) The Partnership shall transfer to the Optionee (or if the Optionee is an employee of a Partnership Subsidiary, the Partnership shall transfer to such Partnership Subsidiary, which in turn shall transfer to the Optionee) at no additional cost, as additional compensation, the number of REIT Shares equal to the number of REIT Shares described in Section 4.4.B(1) hereof less the number of REIT Shares described in Section 4.4.B(2) hereof. (4) The Special Limited Partner shall, as soon as practicable after such exercise, make a Capital Contribution to the Partnership of an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Previous General Partner, the General Partner or the Special Limited Partner in connection with the exercise of such stock option. An equitable Percentage Interest adjustment shall be made in which the Special Limited Partner shall be treated as having made a cash contribution equal to the amount described in Section 4.4.B(1) hereof. B-20 129 C. Special Valuation Rule. For purposes of this Section 4.4, in determining the Value of a REIT Share, only the trading date immediately preceding the exercise of the relevant stock option under the Previous General Partner's Stock Option Plans shall be considered. D. Future Stock Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Previous General Partner, the General Partner or the Special Limited Partner from adopting, modifying or terminating stock incentive plans, in addition to the Previous General Partner's Stock Option Plans, for the benefit of employees, directors or other business associates of the Previous General Partner, the General Partner, the Special Limited Partner, the Partnership any of their Affiliates. The Limited Partners acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Previous General Partner, the General Partner or the Special Limited Partner amendments to this Section 4.4 may become necessary or advisable and that any approval or consent to any such amendments requested by the Previous General Partner, the General Partner or the Special Limited Partner shall not be unreasonably withheld or delayed. Section 4.5 No Interest; No Return. No Partner shall be entitled to interest on its Capital Contribution or on such Partner's Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership. Section 4.6 Conversion of Junior Shares. If, at any time, any of the Junior Shares are converted into REIT Shares, in whole or in part, then a number of Partnership Common Units equal to (i) the number of REIT Shares issued upon such conversion divided by (ii) the Adjustment Factor then in effect shall be issued to the General Partner and the Special Limited Partner (and between the General Partner and the Special Limited Partner in proportion to their ownership of Partnership Common Unit immediately preceding such conversion), and the Percentage Interests of the General Partner and the Limited Partners (including the Special Limited Partner) shall be adjusted to reflect such conversion. ARTICLE 5 DISTRIBUTIONS Section 5.1 Requirement and Characterization of Distributions. Subject to the terms of any Partnership Unit Designation, the General Partner shall cause the Partnership to distribute quarterly all, or such portion as the General Partner may in its sole and absolute discretion determine, of Available Cash generated by the Partnership during such quarter to the Holders of Partnership Common Units in accordance with their respective Partnership Common Units held on such Partnership Record Date. Except as otherwise provided in the terms of any Partnership Unit Designation, distributions payable with respect to any Partnership Units (other than Partnership Units held by the General Partner or the Special Limited Partner) that were not outstanding during the entire quarterly period in respect of which any distribution is made shall be prorated based on the portion of the period that such units were outstanding. The General Partner in its sole and absolute discretion may distribute to the Unitholders Available Cash on a more frequent basis and provide for an appropriate record date. The General Partner shall take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the Previous General Partner's qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable (i) the General Partner and the Special Limited Partner to transfer funds to the Previous General Partner and (ii) the Previous General Partner to pay shareholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (the "REIT Requirements") and (b) avoid any federal income or excise tax liability of the Previous General Partner. Section 5.2 Distributions in Kind. No right is given to any Unitholder to demand and receive property other than cash as provided in this Agreement. The General Partner may determine, in its sole and absolute discretion, to make a distribution in kind of Partnership assets to the Unitholders, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 10 hereof. B-21 130 Section 5.3 Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Unitholder shall be treated as amounts paid or distributed to such Unitholder pursuant to Section 5.1 hereof for all purposes under this Agreement. Section 5.4 Distributions Upon Liquidation. Notwithstanding the other provisions of this Article 5, net proceeds from a Terminating Capital Transaction, and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership, shall be distributed to the Unitholders in accordance with Section 13.2 hereof. Section 5.5 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to any Unitholder on account of its Partnership Interest or interest in Partnership Units if such distribution would violate Section 17-607 of the Act or other applicable law. ARTICLE 6 ALLOCATIONS Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss. Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Fiscal Year of the Partnership as of the end of each such year. Except as otherwise provided in this Article 6, and subject to Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that taken into account in computing Net Income or Net Loss. Section 6.2 General Allocations. Subject to the terms of any Partnership Unit Designation, except as otherwise provided in this Article 6 and subject to Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the Holders of Partnership Common Units in accordance with their respective Partnership Common Units at the end of each Fiscal Year. Section 6.3 Additional Allocation Provisions. Notwithstanding the foregoing provisions of this Article 6: A. Intentionally Omitted. B. Regulatory Allocations. (i) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Holder of Partnership Common Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder's share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.B(i) is intended to qualify as a "minimum gain chargeback" within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. (ii) Partner Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.3.B(i) hereof, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Holder of Partnership Common Units who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder's share of the net decrease in Partner Minimum Gain attributable to such Partner B-22 131 Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each General Partner, Limited Partner and other Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.B(ii) is intended to qualify as a "chargeback of partner nonrecourse debt minimum gain" within the meaning of Regulations Section 1.704-2(i) and shall be interpreted consistently therewith. (iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Holders of Partnership Common Units in accordance with their Partnership Common Units. Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Holder(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i). (iv) Qualified Income Offset. If any Holder of Partnership Common Units unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible, provided that an allocation pursuant to this Section 6.3.B(iv) shall be made if and only to the extent that such Holder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.B(iv) were not in the Agreement. It is intended that this Section 6.3.B(iv) qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (v) Gross Income Allocation. In the event that any Holder of Partnership Common Units has a deficit Capital Account at the end of any Fiscal Year that is in excess of the sum of (1) the amount (if any) that such Holder is obligated to restore to the Partnership upon complete liquidation of such Holder's Partnership Interest (including, the Holder's interest in outstanding Partnership Preferred Units and other Partnership Units) and (2) the amount that such Holder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially allocated items of Partnership income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.3.B(v) shall be made if and only to the extent that such Holder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.B(v) and Section 6.3.B(iv) hereof were not in the Agreement. (vi) Limitation on Allocation of Net Loss. To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Holder of Partnership Common Units, such allocation of Net Loss shall be reallocated among the other Holders of Partnership Common Units in accordance with their respective Partnership Common Units, subject to the limitations of this Section 6.3.B(vi). (vii) Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Holder of Partnership Common Units in complete liquidation of its interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Holders in accordance with their Partnership Common Units in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. B-23 132 (viii) Curative Allocations. The allocations set forth in Sections 6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the "Regulatory Allocations") are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders of Partnership Common Units so that to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder of a Partnership Common Unit shall be equal to the net amount that would have been allocated to each such Holder if the Regulatory Allocations had not occurred. C. Special Allocations Upon Liquidation. Notwithstanding any provision in this Article VI to the contrary, in the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article XIII hereof, then any Net Income or Net Loss realized in connection with such transaction and thereafter (and, if necessary, constituent items of income, gain, loss and deduction) shall be specially allocated the Partners as required so as to cause liquidating distributions pursuant to Section 13.2.A(4) hereof to be made in the same amounts and proportions as would have resulted had such distributions instead been made pursuant to Section 5.1 hereof. D. Allocation of Excess Nonrecourse Liabilities. For purposes of determining a Holder's proportional share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Holder's interest in Partnership profits shall be such Holder's share of Partnership Common Units. Section 6.4 Tax Allocations. A. In General. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations each Partnership item of income, gain, loss and deduction (collectively, "Tax Items") shall be allocated among the Holders of Partnership Common Units in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3 hereof. B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding Section 6.4.A hereof, Tax Items with respect to Property that is contributed to the Partnership with a Gross Asset Value that varies from its basis in the hands of the contributing Partner immediately preceding the date of contribution shall be allocated among the Holders of Partnership Common Units for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Partnership shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the General Partner, including, without limitation, the "traditional method" as described in Regulations Section 1.704-3(b). In the event that the Gross Asset Value of any partnership asset is adjusted pursuant to subsection (b) of the definition of "Gross Asset Value" (provided in Article 1 hereof), subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations. ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS Section 7.1 Management. A. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Partners with or without cause, except with the Consent of the General Partner. In addition to the now or hereafter granted a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other B-24 133 provision of this Agreement, the General Partner, subject to the other provisions hereof including Section 7.3, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof, including, without limitation: (1) the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the Previous General Partner (so long as the Previous General Partner qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Code Section 4981) and to make distribution its shareholders sufficient to permit the Previous General Partner to maintain REIT status or otherwise to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnership's assets) and the incurring of any obligations that it deems necessary for the conduct of the activities of the Partnership; (2) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership; (3) the acquisition, sale, transfer, exchange or other disposition of any assets of the 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 Partnership) or the merger, consolidation, reorganization or other combination of the Partnership with or into another entity; (4) the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms that it sees fit, including, without limitation, the financing of the operations and activities of the General Partner, the Partnership or any of the Partnership's Subsidiaries, the lending of funds to other Persons (including, without limitation, the Partnership's Subsidiaries) and the repayment of obligations of the Partnership, its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to and equity investments in the Partnership's Subsidiaries; (5) the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property, including, without limitation, any Contributed Property, or other asset of the Partnership or any Subsidiary; (6) the negotiation, execution and performance of any contracts, leases, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership's operations or the implementation of the General Partner's powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership's assets; (7) the distribution of Partnership cash or other Partnership assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Partnership, and the collection and receipt of revenues, rents and income of the Partnership; (8) the selection and dismissal of employees of the Partnership or the General Partner (including, without limitation, employees having titles or offices such as "president," "vice president," "secretary" and "treasurer"), and agents, outside attorneys, accountants, consultants and contractors of the Partnership or the General Partner and the determination of their compensation and other terms of employment or hiring; (9) the maintenance of such insurance for the benefit of the Partnership and the Partners as it deems necessary or appropriate; B-25 134 (10) the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, any Subsidiary and any other Person in which it has an equity investment from time to time); provided, however, that, as long as the Previous General Partner has determined to continue to qualify as a REIT, the General Partner may not engage in any such formation, acquisition or contribution that would cause the Previous General Partner to fail to qualify as a REIT or the General Partner to fail to qualify as a "qualified REIT subsidiary" within the meaning of Code Section 856(i)(2); (11) the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; (12) the undertaking of any action in connection with the Partnership's direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons); (13) the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as it may adopt; provided that such methods are otherwise consistent with the requirements of this Agreement; (14) the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner's contribution of property or assets to the Partnership; (15) the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership; (16) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person; (17) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest, pursuant to contractual or other arrangements with such Person; (18) the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement; (19) the issuance of additional Partnership Units, as appropriate and in the General Partner's sole and absolute discretion, in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article 4 hereof; and (20) an election to dissolve the Partnership pursuant to Section 13.1.C hereof. B. Each of the Limited Partners agrees that, except as provided in Section 7.3 hereof, the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement (except as provided in Section 7.3 hereof), the Act or any applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any B-26 135 agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity. C. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Properties of the Partnership and (ii) liability insurance for the Indemnitees hereunder. D. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time. E. In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken by it. The General Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of an income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement so long as the action or inaction is taken in good faith. Section 7.2 Certificate of Limited Partnership. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property. Section 7.3 Restrictions on General Partner's Authority. A. The General Partner may not take any action in contravention of this Agreement, including, without limitation: (1) take any action that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement; (2) possess Partnership property, or assign any rights in specific Partnership property, for other than a Partnership purpose except as otherwise provided in this Agreement; (3) admit a Person as a Partner, except as otherwise provided in this Agreement; (4) perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act; or (5) enter into any contract, mortgage, loan or other agreement that prohibits or restricts, or has the effect of prohibiting or restricting, the ability of (a) the General Partner, the Previous General Partner or the Partnership from satisfying its obligations under Section 8.6 hereof in full or (b) a Limited Partner from exercising its rights under Section 8.6 hereof to effect a Redemption in full, except, in either case, with the written consent of such Limited Partner affected the prohibition or restriction. B-27 136 B. The General Partner shall not, without the prior Consent of the Limited Partners, undertake, on behalf of the Partnership, any of the following actions or enter into any transaction that would have the effect of such transactions: (1) except as provided in Section 7.3.C hereof, amend, modify or terminate this Agreement other than to reflect the admission, substitution, termination or withdrawal of Partners pursuant to Article 11 or Article 12 hereof; (2) 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 Partnership; (3) institute any proceeding for bankruptcy on behalf of the Partnership; or (4) subject to the rights of Transfer provided in Sections 11.1.C and 11.2 hereof, approve or acquiesce to the Transfer of the Partnership Interest of the General Partner, or admit into the Partnership any additional or successor General Partners. C. Notwithstanding Section 7.3.B hereof, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution or withdrawal of Partners or the termination of the Partnership in accordance with this Agreement, and to amend Exhibits A and C in connection with such admission, substitution or withdrawal; (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 this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; (4) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (5) (a) to reflect such changes as are reasonably necessary (i) for either the General Partner or the Special Limited Partner, as the case may be, to maintain its status as a "qualified REIT subsidiary" within the meaning of Code Section 856(i)(2) or (ii) for the Previous General Partner to maintain its status as a REIT or to satisfy the REIT Requirement; (b) to reflect the Transfer of all or any part of a Partnership Interest among the Previous General Partner, the General Partner, the Special Limited Partner or any other "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner; (6) to modify the manner in which Capital Accounts are computed (but only to the extent set forth in the definition of "Capital Account" or contemplated by the Code or the Regulations); and (7) the issuance of additional Partnership Interests in accordance with Section 4.2. The General Partner will provide notice to the Limited Partners when any action under this Section 7.3.C is taken. D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement shall not be amended, and no action may be taken by the General Partner, without the Consent of each Partner adversely affected, if such amendment or action would (i) convert a Limited Partner Interest in the Partnership into a General Partner Interest (except as a result of the General Partner acquiring such Partnership Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter the rights of any Partner to receive the distributions to which such Partner is entitled, pursuant to Article 5 or Section 13.2.A(4) hereof, or alter the allocations specified in B-28 137 Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2 and 7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend or modify any related definitions, or (v) amend this Section 7.3.D; provided, however, that the Consent of each Partner adversely affected shall not be required for any amendment or action that affects all Partners holding the same class or series of Partnership Units on a uniform or pro rata basis. Further, no amendment may alter the restrictions on the General Partner's authority set forth elsewhere in this Section 7.3 without the Consent specified therein. Any such amendment or action consented to by any Partner shall be effective as to that Partner, notwithstanding the absence of such consent by any other Partner. Section 7.4 Reimbursement of the General Partner. A. The General Partner shall not be compensated for its services as general partner of the Partnership except as provided in elsewhere in this Agreement (including the provisions of Articles 5 and 6 hereof regarding distributions, payments and allocations to which it may be entitled in its capacity as the General Partner). B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall be liable for, and shall reimburse the General Partner on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all sums expended in connection with the Partnership's business, including, without limitation, (i) expenses relating to the ownership of interests in and management and operation of, or for the benefit of, the Partnership, (ii) compensation of officers and employees, including, without limitation, payments under future compensation plans of the General Partner that may provide for stock units, or other phantom stock, pursuant to which employees of the General Partner will receive payments based upon dividends on or the value of REIT Shares, (iii) director fees and expenses and (iv) all costs and expenses of the General Partner being a public company, including costs of filings with the SEC, reports and other distributions to its shareholders; provided, however, that the amount of any reimbursement shall be reduced by any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership as permitted pursuant to Section 7.5 hereof. Such reimbursements shall be in addition to any reimbursement of the General Partner as a result of indemnification pursuant to Section 7.7 hereof. C. To the extent practicable, Partnership expenses shall be billed directly to and paid by the Partnership and, subject to Section 15.11 hereof, reimbursements to the General Partner or any of its Affiliates by the Partnership pursuant to this Section 7.4 shall be treated as "guaranteed payments" within the meaning of Code Section 707(c). Section 7.5 Outside Activities of the Previous General Partner and the General Partner. Neither the General Partner nor the Previous General Partner shall directly or indirectly enter into or conduct any business, other than in connection with (a) the ownership, acquisition and disposition of Partnership Interests as General Partner, (b) the management of the business of the Partnership, (c) the operation of the Previous General Partner as a reporting company with a class (or classes) of securities registered under the Exchange Act, (d) the Previous General Partner's operations as a REIT, (e) the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, (f) financing or refinancing of any type related to the Partnership or its assets or activities, (g) the General Partner's qualification as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) and (h) such activities as are incidental thereto. Nothing contained herein shall be deemed to prohibit the General Partner or the Previous General Partner from executing guarantees of Partnership debt for which it would otherwise be liable in its capacity as General Partner. Subject to Section 7.3.B hereof, the General Partner, the Previous General Partner, the Special Limited Partner and all "qualified REIT subsidiaries" (within the meaning of Code Section 856(i)(2)), taken as a group, shall not own any assets or take title to assets (other than temporarily in connection with an acquisition prior to contributing such assets to the Partnership) other than Partnership Interests as the General Partner or Special Limited Partner and other than such cash and cash equivalents, bank accounts or similar instruments or accounts as such group deems reasonably necessary, taking into account Section 7.1.D hereof and the requirements necessary for the Previous General Partner to qualify as a REIT and for the Previous General Partner, the General Partner and the Special Limited Partner to carry out B-29 138 their respective responsibilities contemplated under this Agreement and the Charter. Notwithstanding the foregoing, if the Previous General Partner or the General Partner acquires assets in its own name and owns Property other than through the Partnership, the Partners agree to negotiate in good faith to amend this Agreement, including, without limitation, the definition of "Adjustment Factor," to reflect such activities and the direct ownership of assets by the Previous General Partner or the General Partner. The General Partner and any Affiliates of the General Partner may acquire Limited Partner Interests and shall be entitled to exercise all rights of a Limited Partner relating to such Limited Partner Interests. Section 7.6 Contracts with Affiliates. A. The 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 Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. B. Except as provided in Section 7.5 hereof and subject to Section 3.1 hereof, the 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 this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes to be advisable. C. Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable. D. The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership or any of the Partnership's Subsidiaries. E. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various Affiliates of the Partnership and the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable. Section 7.7 Indemnification. A. To the fullest extent permitted by applicable law, the Partnership shall indemnify each Indemnitee from and 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 Partnership ("Actions") as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that the Partnership shall not indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the law or (ii) for any transaction for which such Indemnitee received an improper personal benefit in violation or breach of any provision of this Agreement. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 7.7.A that the Partnership indemnify each Indemnitee to the fullest extent permitted by law. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of B-30 139 probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7. B. To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Partnership as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.7.A has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified. D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. E. Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership or the General Partner (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7, unless such liabilities arise as a result of (i) such Indemnitee's intentional misconduct or knowing violation of the law, or (ii) any transaction in which such Indemnitee received a personal benefit in violation or breach of any provision of this Agreement or applicable law. F. In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. G. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. H. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership's liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. I. It is the intent of the Partners that any amounts paid by the Partnership to the General Partner pursuant to this Section 7.7 shall be treated as "guaranteed payments" within the meaning of Code Section 707(c). B-31 140 Section 7.8 Liability of the General Partner. A. Notwithstanding anything to the contrary set forth in this Agreement, neither the General Partner nor any of its directors or officers shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of 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. B. The Limited Partners expressly acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and the General Partner's shareholders collectively and that the General Partner is under no obligation to give priority to the separate interests of the Limited Partners or the General Partner's shareholders (including, without limitation, the tax consequences to Limited Partners, Assignees or the General Partner's shareholders) in deciding whether cause the Partnership to take (or decline to take) any actions. C. Subject to its obligations and duties as General Partner set forth in Section 7.1.A hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents (subject to the supervision and control of the General Partner). The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith. D. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's, and its officers' and directors', liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. E. Notwithstanding anything herein to the contrary, except for fraud, willful misconduct or gross negligence, or pursuant to any express indemnities given to the Partnership by any Partner pursuant to any other written instrument, no Partner shall have any personal liability whatsoever, to the Partnership or to the other Partner(s), for the debts or liabilities of the Partnership or the Partnership's obligations hereunder, and the full recourse of the other Partner(s) shall be limited interest of that Partner in the Partnership. To the fullest extent permitted by law, no officer, director or shareholder of the General Partner shall be liable to the Partnership for money damages except for (i) active and deliberate dishonesty established by a non- appealable final judgment or (ii) actual receipt of an improper benefit or profit in money, property or services. Without limitation of the foregoing, and except for fraud, willful misconduct or gross negligence, or pursuant to any such express indemnity, no property or assets of any Partner, other than its interest in the Partnership, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Partner(s) and arising out of, or in connection with, this Agreement. This Agreement is executed by the officers of the General Partner solely as officers of the same and not in their own individual capacities. F. To the extent that, at law or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or the Limited Partners, the General Partner shall not be liable to the Partnership or to any other Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the General Partner otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of such General Partner. Section 7.9 Other Matters Concerning the General Partner. A. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties. B-32 141 B. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. C. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder. D. Notwithstanding any other provision of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Previous General Partner to continue to qualify as a REIT, (ii) for the Previous General Partner otherwise to satisfy the REIT Requirements, (iii) to avoid the Previous General Partner incurring any taxes under Code Section 857 or Code Section 4981 or (iv) for the General Partner or the Special Limited Partner to continue to qualify as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)), is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners. Section 7.10 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively with other Partners or Persons, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held. Section 7.11 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without the consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. B-33 142 ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS Section 8.1 Limitation of Liability. The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement (including, without limitation, Section 10.4 hereof) or under the Act. Section 8.2 Management of Business. No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent, representative, or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement. Section 8.3 Outside Activities of Limited Partners. Subject to any agreements entered into pursuant to Section 7.6.D hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary (including, without limitation, any employment agreement), any Limited Partner and any Assignee, officer, director, employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner, to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.6.D hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary, to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character that, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person. Section 8.4 Return of Capital. Except pursuant to the rights of Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided in Article 6 hereof or otherwise expressly provided in this Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions. Section 8.5 Rights of Limited Partners Relating to the Partnership. A. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner's own expense: (1) to obtain a copy of (i) the most recent annual and quarterly reports filed with the SEC by the Previous General Partner or the General Partner pursuant to the Exchange Act and (ii) each report or other written communication sent to the shareholders of the Previous General Partner; (2) to obtain a copy of the Partnership's federal, state and local income tax returns for each Fiscal Year; (3) to obtain a current list of the name and last known business, residence or mailing address of each Partner; B-34 143 (4) to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and (5) to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and that each Partner has agreed to contribute in the future, and the date on which each became a Partner. B. The Partnership shall notify any Limited Partner that is a Qualifying Party, on request, of the then current Adjustment Factor or any change made to the Adjustment Factor. C. Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or the General Partner or (ii) the Partnership or the General Partner is required by law or by agreements with unaffiliated third parties to keep confidential. Section 8.6 Redemption Rights of Qualifying Parties. A. After the first Twelve-Month Period, a Qualifying Party, but no other Limited Partner or Assignee, shall have the right (subject to the terms and conditions set forth herein) to require the Partnership to redeem all or a portion of the Redeemable Units held by such Tendering Party (such Redeemable Units being hereafter "Tendered Units") in exchange (a "Redemption") for REIT shares issuable on, or the Cash Amount payable on, the Specified Redemption Date, as determined by the Partnership in its sole discretion. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Qualifying Party when exercising the Redemption right (the "Tendering Party"). A Tendering Party shall have no right to receive distributions with respect to any Tendered Units (other than the Cash Amount) paid after delivery of the Notice of Redemption, whether or not the Partnership Record Date for such distribution precedes or coincides with such delivery of the Notice of Redemption. If the Partnership elects to redeem Tendered Units for cash, the Cash Amount shall be delivered as a certified check payable to the Tendering Party or, in the General Partner's sole and absolute discretion, in immediately available funds. B. If the Partnership elects to redeem Tendered Units for REIT Shares rather than cash, then the Partnership shall direct the Previous General Partner to issue and deliver such REIT Shares to the Tendering Party pursuant to the terms set forth in this Section 8.6.B, in which case, (i) the Previous General Partner, acting as a distinct legal entity, shall assume directly the obligation with respect thereto and shall satisfy the Tendering Party's exercise of its Redemption right, and (ii) such transaction shall be treated, for federal income tax purposes, as a transfer by the Tendering Party of such Tendered Units to the Previous General Partner in exchange for REIT shares. The percentage of the Tendered Units tendered for Redemption by the Tendering Party for which the Partnership elects to cause the Previous General Partner to issue REIT Shares (rather than cash) is referred to as the "Applicable Percentage." In making such election to cause the Previous General Partner to acquire Tendered Units, the Partnership shall act in a fair, equitable and reasonable manner that neither prefers one group or class of Qualifying Parties over another nor discriminates against a group or class of Qualifying Parties. If the Partnership elects to redeem any number of Tendered Units for REIT Shares, rather than cash, on the Specified Redemption Date, the Tendering Party shall sell such number of the Tendered Units to the Previous General Partner in exchange for a number of REIT Shares equal to the product of the REIT Shares Amount and the Applicable Percentage. The Tendering Party shall submit (i) such information, certification or affidavit as the Previous General Partner may reasonably require in connection with the application of the Ownership Limit and other restrictions and limitations of the Charter to any such acquisition and (ii) such written representations, investment letters, legal opinions or other instruments necessary, in the Previous General Partner's view, to effect compliance with the Securities Act. The product of the Applicable Percentage and the REIT Shares Amount, if applicable, shall be delivered by the Previous General Partner as duly authorized, validly issued, fully paid and accessible REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or restriction, other than the Ownership Limit and B-35 144 other restrictions provided in the Charter, the Bylaws of the Previous General Partner, the Securities Act and relevant state securities or "blue sky" laws. Neither any Tendering Party whose Tendered Units are acquired by the Previous General Partner pursuant to this Section 8.6.B, any Partner, any Assignee nor any other interested Person shall have any right to require or cause the Previous General Partner or the General Partner to register, qualify or list any REIT Shares owned or held by such Person, whether or not such REIT Shares are issued pursuant to this Section 8.6.B, with the SEC, with any state securities commissioner, department or agency, under the Securities Act or the Exchange Act or with any stock exchange; provided, however, that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the Previous General Partner and any such Person. Notwithstanding any delay in such delivery, the Tendering Party shall be deemed the owner of such REIT Shares and Rights for all purposes, including, without limitation, rights to vote or consent, receive dividends, and exercise rights, as of the Specified Redemption Date. REIT Shares issued upon an acquisition of the Tendered Units by the Previous General Partner pursuant to this Section 8.6.B may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the Previous General Partner in good faith determines to be necessary or advisable in order to ensure compliance with such laws. C. Notwithstanding the provisions of Section 8.6.A and 8.6.B hereof, the Tendering Parties (i) where the Redemption would consist of less than all the Partnership Common Units held by Partners other than the General Partner and the Special Limited Partner, shall not be entitled to elect or effect a Redemption to the extent that the aggregate Percentage Interests of the Limited Partners (other than the Special Limited Partner) would be reduced, as a result of the Redemption, to less that percent (1%) and (ii) shall have no rights under this Agreement that would otherwise be prohibited under the Charter. To the extent that any attempted Redemption would be in violation of this Section 8.6.C, it shall be null and void ab initio, and the Tendering Party shall not acquire any rights or economic interests in REIT Shares otherwise issuable by the Previous General Partner under Section 8.6.B hereof. D. In the event that the Partnership declines to cause the Previous General Partner to acquire all of the Tendered Units from the Tendering Party in exchange for REIT Shares pursuant to Section 8.6.B hereof following receipt of a Notice of Redemption (a "Declination"): (1) The Previous General Partner or the General Partner shall give notice of such Declination to the Tendering Party on or before the close of business on the Cut-Off Date. (2) The Partnership may elect to raise funds for the payment of the Cash Amount either (a) by requiring that the General Partner contribute such funds from the proceeds of a registered public offering (a "Public Offering Funding") by the Previous General Partner of a number of REIT Shares ("Registrable Shares") equal to the REIT Shares Amount with respect to the Tendered Units or (b) from any other sources (including, but not limited to, the sale of any Property and the incurrence of additional Debt) available to the Partnership. (3) Promptly upon the General Partner's receipt of the Notice of Redemption and the Previous General Partner or the General Partner giving notice of the Partnership's Declination, the General Partner shall give notice (a "Single Funding Notice") to all Qualifying Parties then holding a Partnership Interest (or an interest therein) and having Redemption rights pursuant to this Section 8.6 and require that all such Qualifying Parties elect whether or not to effect a Redemption of their Partnership Common Units to be funded through such Public Offering Funding. In the event that any such Qualifying Party elects to effect such a Redemption, it shall give notice thereof and of the number of Partnership Common Units to be made subject thereon in writing to the General Partner within ten (10) Business Days after receipt of the Single Funding Notice, and such Qualifying Party shall be treated as a Tendering Party for all purposes of this Section 8.6. In the event that a Qualifying Party does not so elect, it shall be deemed to have waived its right to effect a Redemption for the current Twelve-Month Period; provided, however, that the Previous General Partner shall not be required to acquire Partnership Common Units pursuant to this Section 8.6.D more than twice within a Twelve-Month Period. B-36 145 Any proceeds from a Public Offering Funding that are in excess of the Cash Amount shall be for the sole benefit of the Previous General Partner and/or the General Partner. The General Partner and/or the Special Limited Partner shall make a Capital Contribution of such amounts to the Partnership for an additional General Partner Interest and/or Limited Partner Interest. Any such contribution shall entitle the General Partner and the Special Limited Partner, as the case may be, to an equitable Percentage Interest adjustment. E. Notwithstanding the provisions of Section 8.6.B hereof, the Previous General Partner shall not, under any circumstances, elect to acquire Tendered Units in exchange for the REIT Shares Amount if such exchange would be prohibited under the Charter. F. Notwithstanding anything herein to the contrary (but subject to Section 8.6.C hereof), with respect to any Redemption pursuant to this Section 8.6: (1) All Partnership Common Units acquired by the Previous General Partner pursuant to Section 8.6.B hereof shall be contributed by the Previous General Partner to either or both of the General Partner and the Special Limited Partner in such proportions as the Previous General Partner, the General Partner and the Special Limited Partner shall determine. Any Partnership Common Units so contributed to the General Partner shall automatically, and without further action required, be converted into and deemed to be a General Partner Interest comprised of the same number of Partnership Common Units. Any Partnership Common Units so contributed to the Special Limited Partner shall remain outstanding. (2) Subject to the Ownership Limit, no Tendering Party may effect a Redemption for less than five hundred (500) Redeemable Units or, if such Tendering Party holds (as a Limited Partner or, economically, as an Assignee) less than five hundred (500) Redeemable Units, all of the Redeemable Units held by such Tendering Party. (3) Each Tendering Party (a) may effect a Redemption only once in each fiscal quarter of a Twelve-Month Period and (b) may not effect a Redemption during the period after the Partnership Record Date with respect to a distribution and before the record date established by the Previous General Partner for a distribution to its shareholders of some or all of its portion of such Partnership distribution. (4) Notwithstanding anything herein to the contrary, with respect to any Redemption or acquisition of Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, in the event that the Previous General Partner or the General Partner gives notice to all Limited Partners (but excluding any Assignees) then owning Partnership Interests (a "Primary Offering Notice") that the Previous General Partner desires to effect a primary offering of its equity securities then, unless the Previous General Partner and the General Partner otherwise consent, commencement of the actions denoted in Section 8.6.E hereof as to a Public Offering Funding with respect to any Notice of Redemption thereafter received, whether or not the Tendering Party is a Limited Partner, may be delayed until the earlier of (a) the completion of the primary offering or (b) ninety (90) days following the giving of the Primary Offering Notice. (5) Without the Consent of the Previous General Partner, no Tendering Party may effect a Redemption within ninety (90) days following the closing of any prior Public Offering Funding. (6) The consummation of such Redemption shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (7) The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provision of Section 11.5 hereof) all Redeemable Units subject to any Redemption, and be treated as a Limited Partner or an Assignee, as applicable, with respect to such Redeemable Units for all purposes of this Agreement, until such Redeemable Units are either paid for by the Partnership pursuant to Section 8.6.A hereof or transferred to the Previous General Partner (or directly to the General Partner or Special Limited Partner) and paid for, by the issuance of the REIT Shares, pursuant to Section 8.6.B hereof on the Specified Redemption Date. Until a Specified Redemption Date and an acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, the Tendering Party shall have B-37 146 no rights as a shareholder of the Previous General Partner with respect to the REIT Shares issuable in connection with such acquisition. For purposes of determining compliance with the restrictions set forth in this Section 8.6.F, all Partnership Common Units beneficially owned by a Related Party of a Tendering Party shall be considered to be owned or held by such Tendering Party. G. In connection with an exercise of Redemption rights pursuant to this Section 8.6, the Tendering Party shall submit the following to the General Partner, in addition to the Notice of Redemption: (1) A written affidavit, dated the same date as the Notice of Redemption, (a) disclosing the actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such Tendering Party and (ii) any Related Party and (b) representing that, after giving effect to the Redemption, neither the Tendering Party nor any Related Party will own REIT Shares in excess of the Ownership Limit; (2) A written representation that neither the Tendering Party nor any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption on the Specified Redemption Date; and (3) An undertaking to certify, at and as a condition to the closing of the Redemption on the Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by the Tendering Party and any Related Party remain unchanged from that disclosed in the affidavit required by Section 8.6.G(1) or (b) after giving effect to the Redemption, neither the Tendering Party nor any Related Party shall own REIT Shares in violation of the Ownership Limit. Section 8.7 Partnership Right to Call Limited Partner Interests. Notwithstanding any other provision of this Agreement, on and after the date on which the aggregate Percentage Interests of the Limited Partners (other than the Special Limited Partner) are less than one percent (1%), the Partnership shall 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 the Special Limited Partner's Limited Partner Interest) by treating any Limited Partner as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 8.6 hereof for the amount of Partnership Common Units to be specified by the General Partner, in its sole and absolute discretion, by notice to such Limited Partner that the Partnership has elected to exercise its rights under this Section 8.7. Such notice given by the General Partner to a Limited Partner pursuant to this Section 8.7 shall be treated as if it were a Notice of Redemption delivered to the General Partner by such Limited Partner. For purposes of this Section 8.7, (a) any Limited Partner (whether or not otherwise a Qualifying Party) may, in the General Partner's sole and absolute discretion, be treated as a Qualifying Party that is a Tendering Party and (b) the provisions of Sections 8.6.C(1), 8.6.F(2), 8.6.F(3) and 8.6.F(5) hereof shall not apply, but the remainder of Section 8.6 hereof shall apply, mutatis mutandis. ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS Section 9.1 Records and Accounting. A. The General Partner shall keep or cause to be kept at the principal office of the Partnership those records and documents required to be maintained by the Act and other books and records deemed by the General Partner to be appropriate with respect to the Partnership's business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 8.5.A or Section 9. hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form for, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time. B-38 147 B. The books of the Partnership shall 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 the General Partner determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Partnership, the General Partner and the Previous General Partner may operate with integrated or consolidated accounting records, operations and principles. Section 9.2 Fiscal Year. The Fiscal Year of the Partnership shall be the calendar year. Section 9.3 Reports. A. As soon as practicable, but in no event later than one hundred five (105) days after the close of each Fiscal Year, the General Partner shall cause to be mailed to each Limited Partner, of record as of the close of the Fiscal Year, an annual report containing financial statements of the Partnership, or of the Previous General Partner if such statements are prepared solely on a consolidated basis with the Previous General Partner, for such Fiscal Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner. B. As soon as practicable, but in no event later than one hundred five (105) days after the close of each calendar quarter (except the last calendar quarter of each year), the General Partner shall cause to be mailed to each Limited Partner, of record as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership, or of the Previous General Partner if such statements are prepared solely on a consolidated basis with the Previous General Partner, and such other information as may be required by applicable law or regulation or as the General Partner determines to be appropriate. At the request of any Limited Partner, the General Partner shall provide access to the books, records and workpapers upon which the reports required by this Section 9.3 are based, to the extent required by the Act. ARTICLE 10 TAX MATTERS Section 10.1 Preparation of Tax Returns. The General Partner shall arrange for the preparation and timely filing of all returns with respect to Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall 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 federal and state income tax reporting purpose The Limited Partners shall promptly provide the General Partner with such information relating to the Contributed Properties, including tax basis and other relevant information, as may be reasonably requested by the General Partner from time to time. Section 10.2 Tax Elections. Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including, but not limited to, the election under Code Section 754 and the election to use the "recurring item" method of accounting provided under Code Section 461(h) with respect to property taxes imposed on the Partnership's Properties; provided, however, that, if the "recurring item" method of accounting is elected with respect to such property taxes, the Partnership shall pay the applicable property taxes prior to the date provided in Code Section 461(h) for purposes of determining economic performance. The General Partner shall have the right to seek to revoke any such election (including, without limitation, any election under Code Sections 461(h) and 754) upon the General Partner's determination in its sole and absolute discretion that such revocation is in the best interests of the Partners. Section 10.3 Tax Matters Partner. A. The General Partner shall be the "tax matters partner" of the Partnership for federal income tax purposes. The tax matters partner shall receive no compensation for its services. All third-party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership in addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist B-39 148 the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable. At the request of any Limited Partner, the General Partner agrees to consult with such Limited Partner with respect to the preparation and filing of any returns and with respect to any subsequent audit or litigation relating to such returns; provided, however, that the filing of such returns shall be in the sole and absolute discretion of the General Partner. B. The tax matters partner is authorized, but not required: (1) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a "tax audit" and such judicial proceedings being referred to as "judicial review"), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a "notice partner" (as defined in Code Section 6231) or a member of a "notice group" (as defined in Code Section 6223(b)(2)); (2) in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a "final adjustment") is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States the district in which the Partnership's principal place of business is located; (3) to intervene in any action brought by any other Partner for judicial review of a final adjustment; (4) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request; (5) to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and (6) to take any other action on behalf of the Partners in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations. The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 hereof shall be fully applicable to the tax matters partner in its capacity as such. Section 10.4 Withholding. Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partners pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf of or with respect to a Limited Partner shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within fifteen (15) days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution that would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the Available Funds of the Partnership that would, but for such payment, be distributed to the Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner's Partnership Interest to secure such B-40 149 Limited Partner's obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.4. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.4 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner (including, without limitation, the right to receive distributions). Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder. ARTICLE 11 TRANSFERS AND WITHDRAWALS Section 11.1 Transfer. A. No part of the interest of a Partner shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement. B. No Partnership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any Transfer or purported Transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio. C. Notwithstanding the other provisions of this Article 11 (other than Section 11.6.D hereof), the Partnership Interests of the General Partner and the Special Limited Partner may be Transferred, in whole or in part, at any time or from time to time, to or among the Previous General Partner, the General Partner, the Special Limited Partner, and any other Person that is, at the time of such Transfer, a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner. Any transferee of the entire General Partner Interest pursuant to this Section 11.1.C shall automatically become, without further action or Consent of any Limited Partners, the sole general partner of the Partnership, subject to all the rights, privileges, duties and obligations under this Agreement and the Act relating to a general partner. Any transferee of a Limited Partner Interest pursuant to this Section 11.1.C shall automatically become, without further action or Consent of any Limited Partners, a Substituted Limited Partner. Upon any Transfer permitted by this Section 11.1.C, the transferor Partner shall be relieved of all its obligations under this Agreement. The provisions of Section 11.2.B (other than the last sentence thereof), 11.3, 11.4.A and 11.5 hereof shall not apply to any Transfer permitted by this Section 11.1.C. Section 11.2 Transfer of General Partner's Partnership Interest. A. The General Partner may not Transfer any of its General Partner Interest or withdraw from the Partnership except as provided in Sections 11.2.B and 11.2.C hereof. B. The General Partner shall not withdraw from the Partnership and shall not Transfer all or any portion of its interest in the Partnership (whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise) without the Consent of the Limited Partners, which Consent may be given or withheld in the sole and absolute discretion of the Limited Partners. Upon any Transfer of such a Partnership Interest pursuant to the Consent of the Limited Partners and otherwise in accordance with the provisions of this Section 11.2.B, the transferee shall become a successor General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any B-41 150 Transfer otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such Transferred Partnership Interest, and such Transfer shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners. In the event that the General Partner withdraws from the Partnership, in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon the bankruptcy of the General Partner, a Majority in Interest of the Limited Partners may elect to continue the Partnership business by selecting a successor General Partner in accordance with the Act. C. The General Partner may merge with another entity if immediately after such merger substantially all of the assets of the surviving entity, other than the General Partner Interest held by the General Partner, are contributed to the Partnership as a Capital Contribution in exchange for Partnership Units. Section 11.3 Limited Partners' Rights to Transfer. A. General. Prior to the end of the first Twelve-Month Period, no Limited Partner shall Transfer all or any portion of its Partnership Interest to any transferee without the Consent of the General Partner, which Consent may be withheld in its sole and absolute discretion; provided, however, that any Limited Partner may, at any time, without the consent of the General Partner, (i) Transfer all or part of its Partnership Interest to any Designated Party, any Family Member, any Controlled Entity or any Affiliate, provided that the transferee is, in any such case, a Qualified Transferee, or (ii) pledge (a "Pledge") all or any portion of its Partnership Interest to a lending institution, that is not an Affiliate of such Limited Partner, as collateral or security for a bona fide loan or other extension of credit, and Transfer such pledged Partnership Interest to such lending institution in connection with the exercise of remedies under such loan or extension or credit (any Transfer or Pledge permitted by this proviso is hereinafter referred to as a "Permitted Transfer"). After such first Twelve-Month Period, each Limited Partner, and each transferee of Partnership Units or Assignee pursuant to a Permitted Transfer, shall have the right to Transfer all or any portion of its Partnership Interest to any Person, subject to the provisions of Section 11.6 hereof and to satisfaction of each of the following conditions: (1) General Partner Right of First Refusal. The transferring Partner shall give written notice of the proposed Transfer to the General Partner, which notice shall state (i) the identity of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Partnership Units. The General Partner shall have ten (10) Business Days upon which to give the Transferring Partner notice of its election to acquire the Partnership Units on the proposed terms. If it so elects, it shall purchase the Partnership Units on such terms within ten (10) Business Days after giving notice of such election; provided, however, that in the event that the proposed terms involve a purchase for cash, the General Partner may at its election deliver in lieu of all or any portion of such cash a note payable to the Transferring Partner at a date as soon as reasonably practicable, but in no event later than one hundred eighty (180) days after such purchase, and bearing interest at an annual rate equal to the total dividends declared with respect to one (1) REIT Share for the four (4) preceding fiscal quarters of the General Partner, divided by the Value as of the closing of such purchase; provided, further, that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and any other applicable requirements of law. If it does not so elect, the Transferring Partner may Transfer such Partnership Units to a third party, on terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3. (2) Qualified Transferee. Any Transfer of a Partnership Interest shall be made only to a single Qualified Transferee; provided, however, that, for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; provided, further, that each Transfer meeting the minimum Transfer restriction of Section 11.3.A(3) hereof may be to a separate Qualified Transferee. (3) Minimum Transfer Restriction. Any Transferring Partner must Transfer not less than the lesser of (i) the greater of five hundred (500) Partnership Units or one-third ( 1/3) of the number of Partnership Units owned by such Partner as of the Effective Date or (ii) all of the remaining Partnership B-42 151 Units owned by such Transferring Partner; provided, however, that, for purposes of determining compliance with the foregoing restriction, all Partnership Units owned by Affiliates of Limited Partner shall be considered to be owned by such Limited Partner. (4) Transferee Agreement to Effect a Redemption. Any proposed transferee shall deliver to the General Partner a written agreement reasonably satisfactory to the General Partner to the effect that the transferee will, within six (6) months after consummation of a Partnership Common Units Transfer, tender its Partnership Common Units for Redemption in accordance with the terms of the Redemption rights provided in Section 8.6 hereof. (5) No Further Transfers. The transferee (other than a Designated Party) shall not be permitted to effect any further Transfer of the Partnership Units, other than to the General Partner. (6) Exception for Permitted Transfers. The conditions of Sections 11.3.A(1) through 11.3.A(5) hereof shall not apply in the case of a Permitted Transfer. It is a condition to any Transfer otherwise permitted hereunder (whether or not such Transfer is effected during or after the first Twelve-Month Period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such Transferred Partnership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner, in its sole and absolute discretion. Notwithstanding the foregoing, any transferee of any Transferred Partnership Interest shall be subject to any and all ownership limitations (including, without limitation, the Ownership Limit) contained in the Charter that may limit or restrict such transferee's ability to exercise its Redemption rights, including, without limitation, the Ownership Limit. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5 hereof. B. Incapacity. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner's estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to Transfer all or any part of its interest in the Partnership. The Incapacity of Limited Partner, in and of itself, shall not dissolve or terminate the Partnership. C. Opinion of Counsel. In connection with any Transfer of a Limited Partner Interest, the General Partner shall 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 and will not otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Interests Transferred. If, in the opinion of such counsel, such Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Units, the General Partner may prohibit any Transfer otherwise permitted under this Section 11.3 by a Limited Partner of Partnership Interests. D. Adverse Tax Consequences. No Transfer by a Limited Partner of its Partnership Interests (including any Redemption, any other acquisition of Partnership Units by the General Partner or any acquisition of Partnership Units by the Partnership) may be made to any person if (i) in the opinion of legal counsel for the Partnership, it would result in the 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 Code Section 7704. B-43 152 Section 11.4 Substituted Limited Partners. A. No Limited Partner shall have the right to substitute a transferee (including any Designated Party or other transferees pursuant to Transfers permitted by Section 11.3 hereof) as a Limited Partner in its place. A transferee (including, but not limited to, any Designated Party) of the interest of a Limited Partner may be admitted as a Substituted Limited Partner only with the Consent of the General Partner, which Consent may be given or withheld by the General Partner in its sole an absolute discretion. The failure or refusal by the General Partner to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or the General Partner. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Limited Partner until and unless it furnishes to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee and (iii) such other documents and instruments as may be required or advisable, in the sole and absolute discretion of the General Partner, to effect such Assignee's admission as a Substituted Limited Partner. B. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. C. Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name, address and number of Partnership Units of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and number of Partnership Units of the predecessor of such Substituted Limited Partner. Section 11.5 Assignees. If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 hereof as a Substituted Limited Partner, as described in Section 11.4 hereof, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Partnership attributable to the Partnership Units assigned to such transferee and the rights to Transfer the Partnership Units provided in this Article 11, but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement (other than as expressly provided in Section 8.6 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Partnership Units on any matter presented to the Limited Partners for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Limited Partner). In the event that any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units. Section 11.6 General Provisions. A. No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer of all of such Limited Partner's Partnership Units in accordance with this Article 11, with respect to which the transferee becomes a Substituted Limited Partner, or pursuant to a redemption (or acquisition by the Previous General Partner) of all of its Partnership Units pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit Designation. B. Any Limited Partner who shall Transfer all of its Partnership Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its rights to effect a redemption of all of its Partnership Units pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit Designation or (iii) to the Previous General Partner or the General Partner, whether or not pursuant to Section 8.6.B hereof, shall cease to be a Limited Partner. B-44 153 C. If any Partnership Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Partnership, or acquired by the Previous General Partner pursuant to Section 8.6 hereof, on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Partnership Unit for such Fiscal Year shall be allocated to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer or assignment other than a Redemption, to the transferee Partner (including, without limitation, the General Partner and the Special Limited Partner as transferees of the Previous General Partner in the case of an acquisition of Partnership Common Units pursuant to Section 8.6 hereof), by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which a Transfer occurs shall be allocated to the transferee Partner and none of such items for the calendar month in which a Transfer or a Redemption occurs shall be allocated to the transferor Partner or the Tendering Party, as the case may be, if such Transfer occurs on or before the fifteenth (15th) day of the month, otherwise such items shall be allocated to the transferor. All distributions of Available Cash attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer other than a Redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner. D. In addition to any other restrictions on Transfer herein contained, in no event may any Transfer or assignment of a Partnership Interest by any Partner (including any Redemption, any acquisition of Partnership Units by the Previous General Partner or any other acquisition of Partnership Units by the Partnership) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) in the event that such Transfer would cause either (a) the Previous General Partner to cease to comply with the REIT Requirements or (b) the General Partner or the Special Limited Partner to cease to qualify as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)); (v) if such Transfer would, in the opinion of counsel to the Partnership or the General Partner, cause a termination of the Partnership for federal or state income tax purposes (except as a result of the Redemption (or acquisition by the Previous General Partner) of all Partnership Common Units held by all Limited Partners other than the Special Limited Partner); (vi) if such Transfer would, in the opinion of legal counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption (or acquisition by the Previous General Partner) of all Partnership Common Units held by all Limited Partners other than the Special Limited Partner); (vii) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section 3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (viii) if such Transfer would, in the opinion of legal counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (ix) if such Transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (x) if such Transfer causes the Partnership to become a "publicly traded partnership," as such term is defined in Code Section 469(k)(2) or Code 7704(b); or (xi) if such Transfer subjects the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended. B-45 154 ARTICLE 12 ADMISSION OF PARTNERS Section 12.1 Admission of Successor General Partner. A successor to all of the General Partner's General Partner Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately prior to such Transfer. Any such successor shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. Section 12.2 Admission of Additional Limited Partners. A. After the admission to the Partnership of an Original Limited Partner on the date hereof, a Person (other than an existing Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to this Agreement executed by such Person and (iii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person's admission as an Additional Limited Partner. B. Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission. C. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Code Section 7 using the "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner, in accordance with the principles described in Section 11.6.C hereof. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of Available Cash thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner. Section 12.3 Amendment of Agreement and Certificate of Limited Partnership. For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power attorney granted pursuant to Section 2.4 hereof. Section 12.4 Admission of Initial Limited Partners. The Persons listed on Exhibit A as limited partners of the Partnership shall be admitted to the Partnership as Limited Partners upon their execution and delivery of this Agreement. B-46 155 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION Section 13.1 Dissolution. The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership without dissolution. However, the Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of an of the following (each a "Liquidating Event"): A. the expiration of its term as provided in Section 2.5 hereof; B. an event of withdrawal, as defined in the 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 Act) of the remaining Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a successor General Partner: C. an election to dissolve the Partnership made by the General Partner in its sole and absolute discretion, with or without the Consent of the Limited Partners; D. entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act; E. the occurrence of a Terminating Capital Transaction; F. the Redemption (or acquisition by the Previous General Partner, the General Partner and/or the Special Limited Partner) of all Partnership Common Units other than Partnership Common Units held by the General Partner or the Special Limited Partner; or G. the Redemption (or acquisition by the General Partner) of all Partnership Common Units other than Partnership Common Units held by the General Partner. Section 13.2 Winding Up. A. Upon the occurrence of a Liquidating Event, the Partnership shall 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. After the occurrence of a Liquidating Event, no Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership's business and affairs. The General Partner (or, in the event that there is no remaining General Partner or the General Partner has dissolved, become bankrupt within the meaning of the Act or ceased to operate, any Person elected by a Majority in Interest of the Limited Partners (the General Partner or such other Person being referred to herein as the "Liquidator")) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership's liabilities and property, and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the Previous General Partner) shall be applied and distributed in the following order: (1) First, to the satisfaction of all of the 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); (2) Second, to the satisfaction of all of the Partnership's debts and liabilities to the General Partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.4 hereof; (3) Third, to the satisfaction of all of the Partnership's debts and liabilities to the other Partners and any Assignees (whether by payment or the making of reasonable provision for payment thereof); and B-47 156 (4) Subject to the terms of any Partnership Unit Designation, the balance, if any, to the General Partner, 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. The General Partner shall not receive any additional compensation for any services performed pursuant to this Article 13. B. Notwithstanding the provisions of Section 13.2.A hereof that require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. C. In the event that the Partnership is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article 13 to the Partners and Assignees that have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the extent of, and in proportion to, positive Capital Account balances. If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever. In the sole and absolute discretion of the General Partner or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to this Article 13 may be withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and order of priority set forth in Section 13.2.A hereof as soon as practicable. Section 13.3 Deemed Distribution and Recontribution. Notwithstanding any other provision of this Article 13, in the event that the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's Property shall not be liquidated, the Partnership's liabilities shall not be paid or discharged and the Partnership's affairs shall not be wound up. Instead, for federal income tax purposes the Partnership shall be deemed to have distributed the Property in kind to the Partners and the Assignees, who shall be deemed to have assumed and taken such Property subject to all Partnership liabilities, all in accordance with their respective Capital Accounts. Immediately thereafter, the Partners and the Assignees shall be deemed to have recontributed the Partnership Property in kind to the Partnership, which shall be deemed to have assumed and taken such Property subject to all such liabilities; provided, however, that nothing in this Section 13.3 shall be deemed to have constituted any Assignee as a Substituted Limited Partner without compliance with the provisions of Section 11.4 hereof. Section 13.4 Rights of Limited Partners. Except as otherwise provided in this Agreement, (a) each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contribution, (b) no Limited Partner shall have the right or power to demand or receive property other than cash from the Partnership and (c) no Limited Partner shall have priority over any other Limited Partner as to the return of its Capital Contributions, distributions or allocations. B-48 157 Section 13.5 Notice of Dissolution. In the event that a Liquidating Event occurs or an event occurs that would, but for an election or objection by one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each of the Partners and, in the General Partner's sole and absolute discretion or as required by the Act, to all other parties with whom the Partners regularly conducts business (as determined in the sole and absolute discretion of the General Partner), and the General Partner may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner). Section 13.6 Cancellation of Certificate of Limited Partnership. Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2 hereof, the Partnership shall be terminated, a certificate of cancellation shall be filed with the State of Delaware, all qualifications of the Partnership as a foreign limited partnership or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Partnership shall be taken. Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation. ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS Section 14.1 Procedures for Actions and Consents of Partners. The actions requiring consent or approval of Limited Partners pursuant to this Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Article 14. Section 14.2 Amendments. Amendments to this Agreement may be proposed by the General Partner or by a Majority in Interest of the Limited Partners. Following such proposal, the General Partner shall submit any proposed amendment to the Limited Partners. The General Partner shall seek the written consent of the Limited Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that the General Partner may deem appropriate. For purposes of obtaining a written consent, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a consent that is consistent with the General Partner's recommendation with respect to the proposal; provided, however, that an action shall become effective at such time as requisite consents are received even if prior to such specified time. Section 14.3 Meetings of the Partners. A. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by a Majority in Interest of the Limited Partners. The call shall state the nature of the business to be transacted. Notice of any such meeting shall 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. Whenever the Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.3.B hereof. B. 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 a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement for the action in question). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of a majority of the Percentage Interests of Partners (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. B-49 158 C. Each Limited Partner may authorize any Person or Persons to act for it by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership's receipt of written notice of such revocation from the Limited Partner executing such proxy. D. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the General Partner's shareholders and may be held at the same time as, and as part of, the meetings of the General Partner's shareholders. ARTICLE 15 GENERAL PROVISIONS Section 15.1 Addresses and Notice. Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication (including by telecopy, facsimile, or commercial courier service) to the Partner or Assignee at the address set forth in Exhibit A or such other address of which the Partner shall notify the General Partner in writing. Section 15.2 Titles and Captions. All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to "Articles" or "Sections" are to Articles and Sections of this Agreement. Section 15.3 Pronouns and Plurals. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Section 15.4 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. Section 15.5 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 15.6 Waiver. A. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. B. The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner, in its sole and absolute discretion, on behalf of the Partnership in one or more instances from time and at any time; provided, however, that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Limited Partner, (ii) causing the Partnership to cease to qualify as a limited partnership, (iii) reducing the amount of cash otherwise distributable to the Limited Partners, (iv) resulting in the classification of the Partnership as an association or publicly traded partnership taxable as a corporation or (v) violating the B-50 159 Securities Act, the Exchange Act or any state "blue sky" or other securities laws; provided, further, that any waiver relating to compliance with the Ownership Limit or other restrictions in the Charter shall be made and shall be effective only as provided in the Charter. Section 15.7 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto. Section 15.8 Applicable Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence. Section 15.9 Entire Agreement. This Agreement contains all of the understandings and agreements between and among the Partners with respect to the subject matter of this Agreement and the rights, interests and obligations of the Partners with respect to the Partnership. Section 15.10 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. Section 15.11 Limitation to Preserve REIT Status. Notwithstanding anything else in this Agreement, to the extent that the amount paid, credited, distributed or reimbursed by the Partnership to any REIT Partner or its officers, directors, employees or agents, whether as a reimbursement, fee, expense or indemnity (a "REIT Payment"), would constitute gross income to the REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any other provision of this Agreement, the amount of such REIT Payments, as selected by the General Partner in its discretion from among items of potential distribution, reimbursement, fees, expenses and indemnities, shall be reduced for any Fiscal Year so that the REIT Payments, as so reduced, for or with respect to such REIT Partner shall not exceed the lesser of: (i) an amount equal to the excess, if any, of (a) four and nine-tenths percent (4.9%) of the REIT Partner's total gross income (but excluding the amount of any REIT Payments) for the Fiscal Year that is described in subsections (A) through (H) of Code Section 856(c)(2) over (b) the amount of gross income (within the meaning of Code Section 856(c)(2)) derived by the REIT Partner from sources other than those described in subsections (A) through (H) of Code Section 856(c)(2) (but not including the amount of any REIT Payments); or (ii) an amount equal to the excess, if any, of (a) twenty-four percent (24%) of the REIT Partner's total gross income (but excluding the amount of any REIT Payments) for the Fiscal Year that is described in subsections (A) through (I) of Code Section 856(c)(3) over (b) the amount of gross income (within the meaning of Code Section 856(c)(3)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(3) (but not including the amount of any REIT Payments); provided, however, that REIT Payments in excess of the amounts set forth in clauses (i) and (ii) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts shall not adversely affect the REIT Partner's ability to qualify as a REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a consequence of the limitations set forth in this Section 15.11, such REIT Payments shall carry over and shall be treated as arising in the following Fiscal Year. The purpose of the limitations contained in this Section 15.11 is to prevent any REIT Partner from failing to qualify as a REIT under the Code by reason of such REIT Partner's share of items, including distributions, reimbursements, fees, expenses or indemnities, receivable directly or indirectly from the Partnership, and this Section 15.11 shall be interpreted and applied to effectuate such purpose. B-51 160 Section 15.12 No Partition. No Partner nor any successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any property of the Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Partners and their successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement. Section 15.13 No Third-Party Rights Created Hereby. The provisions of this Agreement are solely for the purpose of defining the interests of the Partners, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans to the Partnership or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or any of the Partners. IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above. PREVIOUS GENERAL PARTNER: APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President GENERAL PARTNER: AIMCO-GP, INC. By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President SPECIAL LIMITED PARTNER: AIMCO-LP, INC. By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President B-52 161 LIMITED PARTNERS: By: AIMCO-GP, INC., as attorney-in-fact By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President B-53 162 LETTER OF TRANSMITTAL TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST IN [ ] LIMITED PARTNERSHIP PURSUANT TO AN OFFER DATED [ ] [ ], 1998 BY AIMCO PROPERTIES, L.P. --------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., DENVER TIME, ON [ ] [ ], 1998, UNLESS EXTENDED. --------------------- The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: Toll Free (818) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com To participate in the offer, you must send a duly executed copy of this Letter of Transmittal and you must send such duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal so that such documents are received by River Oaks Partnership Services, Inc., the Information Agent, on or prior to the Expiration Date. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY. FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT AT (888) 349-2005 (TOLL FREE) OR (201) 896-1900. 163 - -------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF UNITS TENDERED - -------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE INDICATE CHANGES OR NUMBER OF UNITS TENDERED CORRECTIONS TO THE NAME, (ATTACH ADDITIONAL LIST, IF NECESSARY) ADDRESS AND TAX IDENTIFICATION NUMBER PRINTED BELOW.) - -------------------------------------------------------------------------------------------------------------------- 2. NUMBER 3. NUMBER OF UNITS OF UNITS 4. NUMBER 5. TOTAL 1. TOTAL TENDERED FOR TENDERED FOR OF UNITS NUMBER NUMBER OF PREFERRED COMMON TENDERED FOR OF UNITS UNITS OWNED OP UNITS* OP UNITS* CASH* TENDERED (#) (#) (#) (#) (#) ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- * Less the amount of distributions, if any, made by the Partnership from the date of the Prospectus Supplement until the Expiration Date. - --------------------------------------------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 9) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be issued in the name of someone other than the undersigned. [ ] Issue consideration to: Name: --------------------------------------------------------------------- (Please type or Print) Address: ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Include Zip Code) - ------------------------------------------------------------------------------- (Tax Identification or Social Security No.) (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 9) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. [ ] Mail consideration to: Name: -------------------------------------------------------------------------- (Please type or Print) Address: ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Include Zip Code) 164 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby acknowledges that he or she has received and reviewed (i) Apartment Investment and Management Company and AIMCO Properties, Inc. Prospectus, dated [ ] [ ], 1998, as supplemented or amended from time to time, (ii) the Prospectus Supplement of AIMCO Properties, L.P., (the "Purchaser") dated [ ] [ ], which describes the exchange offer, as supplemented or amended form time to time, [and] (iii) this Letter of Transmittal, including the Instructions hereto, as it may be supplemented or amended from time to time (the "Letter of Transmittal")[, and (iv) the Partnerships' Form 10-K[SB] for the year ended December 31, 1997 and Form 10-Q[SB] for the quarter ended June 30, 1998] (all constituting the "Offer"). Upon the terms and subject to the conditions set forth in the Offer and this Letter of Transmittal, the undersigned hereby tenders to the Purchaser the units of limited partnership interest ("Units") in [ ], a [ ] limited partnership (the "Partnership"), set forth in the box above entitled "Description of Units Tendered" under the column entitled "Total Number of Units Tendered." For each Unit that you tender, you may choose to receive as consideration per Unit (the "Offer Price") any combination of Tax-Deferral % Partnership Unit, ("Preferred OP Unit"), Tax- Deferral Partnership Common Units ("Common OP Units") or $ in cash, reduced in each case for the amount of distributions, if any, made by the Partnership from the date of the Prospectus Supplement until the Expiration Date. The number of Units you choose to tender for each type of consideration will be set forth by you in the box above entitled "Description of Units Tendered" under the columns entitled "Number of Units Tendered for Preferred OP Units," "Number of Units Tendered for Common OP Units," and "Number of Units Tendered for Cash." All holders of Units who do not specify which type of consideration they wish to receive will be deemed to have elected to receive Preferred OP Units. Subject to and effective upon acceptance for payment of any of the Units tendered hereby in accordance with the terms of the Offer, the undersigned hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon the order of, the Purchaser all right, title and interest in and to such Units tendered hereby that are accepted for payment pursuant to the Offer, including, without limitation, (i) all of the undersigned's interest in the capital of the Partnership, and the undersigned's interest in all profits, losses and distributions of any kind to which the undersigned shall at any time be entitled in respect of the Units; (ii) all other payments, if any, due or to become due to the undersigned in respect of the Units, under or arising out of the Partnership Agreement, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of the undersigned's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Partnership Agreement or the undersigned's ownership of the Units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of the Partnership; and (iv) all present and future claims, if any, of the undersigned against the Partnership or its partners under or arising out of the Partnership Agreement for monies loaned or advanced, for services rendered, for the management of the Partnership or otherwise. The undersigned hereby irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to vote or act in such manner as any such attorney and proxy or substitute shall, in its sole discretion, deem proper with respect to such Units, to deliver such Units and transfer ownership of such Units on the partnership books maintained by the general partner of the Partnership, together with all accompanying evidence of transfer and authenticity to, or upon the order of, the Purchaser, to sign any and all documents necessary to authorize the transfer of the Units to the Purchaser including, without limitation, the "Transferor's (Seller's) Application for Transfer" created by the National Association of Securities Dealers, Inc., if required, and upon receipt by the Information Agent, as the undersigned's agent, of the offer price, to become a substitute limited partner, to receive any and all distributions made by the Partnership from and after the Expiration Date, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units all in accordance with the terms of the Offer. NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT TO THE CONTRARY, THE UNDERSIGNED HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE ALL 165 DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS DESIGNEE. The Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to one or more of its affiliates, the right to purchase Units tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering Limited Partners to receive payment for Units validly tendered and accepted for payment pursuant to the Offer. Subject to and effective upon acceptance for payment of any Unit tendered hereby, the undersigned hereby requests that the Purchaser be admitted to the Partnership as a substitute limited partner under the terms of the Partnership Agreement. Upon request, the undersigned will execute and deliver additional documents deemed by the Information Agent or the Purchaser to be necessary or desirable to complete the assignment, transfer and purchase of Units tendered hereby and will hold any distributions received from the Partnership after the Expiration Date in trust for the benefit of the Purchaser and, if necessary, will promptly forward to the Purchaser any such distributions immediately upon receipt. Upon the purchase of Units pursuant to the Offer, all prior proxies and consents given by the undersigned with respect to such Units will be revoked and no subsequent proxies or consents may be given (and if given will not be deemed effective). In addition to and without limiting the generality of the foregoing, the undersigned hereby irrevocably (a) appoints the Purchaser and its general partner managers and designees (each an "Agent") as the undersigned's attorneys-in-fact, each with full power of substitution, with an irrevocable instruction to each Agent to discretion in relation to the Units tendered hereby and accepted for payment by the Purchaser, and to do all such other acts and things as may in the opinion of the Agent be necessary or expedient for the purpose of, or in connection with, the undersigned's acceptance of the offer and to vest in the Purchaser, or as it may direct, those Units, effective when, and only to the extent that, the Purchaser accepts the tendered Units for payment; (b) authorizes and requests the Partnership and general partner to take any and all acts as may be required to effect the transfer of the undersigned's Units to the Purchaser (or it designee) and admit the Purchaser (or its designee) as a substituted Limited Partner in the Partnership; (c) assigns to the Purchaser and its assigns all of the right, title and interest of the undersigned in and to any and all distributions made by the Partnership from and after the expiration of the offer in respect of the Units tendered by the undersigned; (d) grants to the Purchaser and its assigns the right to receive any and all distributions made by the Partnership on or after the date on which the Purchaser pays for the Units tendered by the undersigned (regardless of the record date for any such distribution), and to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units; (e) empowers the Purchaser and the Agent to execute and deliver to the general partner a change of address form instructing the general partner to send any and all future distributions to the address specified in the form, and to endorse any check payable to or upon the order of such Limited Partner representing a distribution to which the Purchaser is entitled to the terms of the offer, in each case in the name and on behalf of the tendering Limited Partner; and (f) agrees not to exercise any rights pertaining to the Units without the prior consent of the Purchaser. By executing this Letter of Transmittal, the undersigned represents that either (a) the undersigned is not a plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such plan, or (b) the tender and acceptance of Units pursuant to the Offer will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. The undersigned understands that a tender of Units to the Purchaser will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer, the Purchaser may not be required to accept for payment any of the Units tendered hereby. In such event, the undersigned understands that any Letter of Transmittal for Units not accepted for payment may be destroyed by the Purchaser (or its agent). Except as stated in the Offer, this tender is irrevocable, provided that Units tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless already accepted for payment as provided in the Offer, may also be withdrawn at any time after [ ] [ ], 1998. THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE GENERAL PARTNER OF THE PARTNERSHIP AND THE GENERAL PARTNER OF THE PARTNERSHIP MAKES NO RECOMMENDATION TO THE UNDERSIGNED AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING UNITS IN THE OFFER AND THE UNDERSIGNED HAS MADE HIS OR HER OWN DECISION TO TENDER UNITS. 166 The undersigned hereby represents and warrants for the benefit of the Partnership and the Purchaser that the undersigned owns the Units tendered hereby and has full power and authority and has taken all necessary action to validly tender, sell, assign, transfer, convey and deliver the Units tendered hereby and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claims and that the transfer and assignment contemplated herein are in compliance with all applicable laws and regulations. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. 167 SIGNATURE BOX (SEE INSTRUCTION 2) Please sign exactly as your name is printed on the front of this Letter of Transmittal. For joint owners, each joint owner must sign. (See Instruction 2). TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF A CORPORATION OR OTHER PERSONS ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE COMPLETE THIS BOX AND SEE INSTRUCTION 2. The signatory hereto hereby tenders the Units indicated in this Letter of Transmittal to the Purchaser pursuant to the terms of the Offers, and certifies under penalties of perjury that the statements in Box A, Box B and, if applicable, Box C are true. X ------------------------------------------------------------------------------- (SIGNATURE OF OWNER) X ------------------------------------------------------------------------------- (SIGNATURE OF JOINT OWNER) Name and Capacity (if other than individuals): ---------------------------------- Title: -------------------------------------------------------------------------- Address (Fiduciaries only): ----------------------------------------------------- - -------------------------------------------------------------------------------- (CITY) (STATE) (ZIP) Area Code and Telephone No. (Day): ---------------------------------------------- (Evening): ---------------------------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED) (SEE INSTRUCTION 2) Name and Address of Eligible Institution: --------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Authorized Signature: X ----------------------------------------------------------- Name: --------------------------------------------------------------------------- Title: Date: ------------------------------------- -------------------------- 168 TAX CERTIFICATIONS (SEE INSTRUCTION 4) By signing the Letter of Transmittal in the Signature Box, the Limited Partner certifies as true under penalty of perjury, the representations in Boxes A, B and C below. Please refer to the attached Instructions for completing this Letter of Transmittal and Boxes A, B and C below. BOX A SUBSTITUTE FORM W-9 (SEE INSTRUCTION 4 -- BOX A) The person signing this Letter of Transmittal hereby certifies the following to the Purchaser under penalties of perjury: (i) The Taxpayer Identification No. ("TIN") printed (or corrected) on the front of this Letter of Transmittal is the correct TIN of the Limited Partner, unless the Units are held in an Individual Retirement Account (IRA); or if this box [ ] is checked, the Limited Partner has applied for a TIN. If the Limited Partner has applied for a TIN, a TIN has not been issued to the Limited Partner, and either (a) the Limited Partner has mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office, or (b) the Limited Partner intends to mail or deliver an application in the near future (it being understood that if the Limited Partner does not provide a TIN to the Purchaser, 31% of all reportable payments made to the Limited Partner will be withheld); and (ii) Unless this box [ ] is checked, the Limited Partner is not subject to backup withholding either because the Limited Partner: (a) is exempt from backup withholding; (b) has not been notified by the IRS that the Limited Partner is subject to backup withholding as a result of a failure to report all interest or dividends; or (c) has been notified by the IRS that such Limited Partner is no longer subject to backup withholding. Note: Place an "X" in the box in (ii) above, only if you are unable to certify that the Limited Partner is not subject to backup withholding. 169 BOX B FIRPTA AFFIDAVIT (SEE INSTRUCTION 4 -- BOX B) Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg. 1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount realized with respect to certain transfers of an interest in a partnership if 50% or more of the value of its gross assets consists of U.S. real property interests and 90% or more of the value of its gross assets consists of U.S. real property interests plus cash equivalents, and the holder of the partnership interest is a foreign person. To inform the Purchaser that no withholding is required with respect to the Limited Partner's Units in the Partnership, the person signing this Letter of Transmittal hereby certifies the following under penalties of perjury: (i) Unless this box [ ] is checked, the Limited Partner, if an individual, is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and if other than an individual, is not a foreign corporation, foreign partnership, foreign estate or foreign trust (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); (ii) The Limited Partner's U.S. social security number (for individuals) or employer identification number (for non-individuals) is correct as furnished in the blank provided for that purpose on the front of the Letter of Transmittal; (iii) The Limited Partner's home address (for individuals), or office address (for non-individuals), is correctly printed (or corrected) on the front of this Letter of Transmittal; and (iv) If the Limited Partner is a corporation, then the jurisdiction of incorporation is ____________________. The person signing this Letter of Transmittal understands that this certification may be disclosed to the IRS by the Purchaser and that any false statements contained herein could be punished by fine, imprisonment, or both. (SEE BOX C ON REVERSE SIDE) 170 BOX C SUBSTITUTE FORM W-8 (SEE INSTRUCTION 4 -- BOX C) By checking this box [ ], the person signing this Letter of Transmittal hereby certifies under penalties of perjury that the Limited Partner is an "exempt foreign person" for purposes of the Backup Withholding rules under the U.S. Federal income tax laws, because the Limited Partner has the following characteristics: (i) Is a nonresident alien individual or a foreign corporation, partnership, estate or trust; (ii) If an individual, has not been and plans not to be present in the U.S. for a total of 183 days or more during the calendar year; and (iii) Neither engages, nor plans to engage, in a U.S. trade or business that has effectively connected gains from transactions with a broker or barter exchange. 171 INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL 1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter of Transmittal (or facsimile thereof) and any other required documents must be received by the Information Agent at one of its addresses (or its facsimile number) set forth herein before 5:00 p.m., Denver Time, on [ ] [ ], 1998, unless extended. To ensure receipt of the Letter of Transmittal and any other required documents, it is suggested that you use overnight courier delivery or, if the Letter of Transmittal and any other required documents are to be delivered by United States mail, that you use certified or registered mail, return receipt requested. LETTERS OF TRANSMITTAL WHICH HAVE BEEN DULY EXECUTED, BUT WHERE NO DEFINITIVE INDICATION IS MARKED IN THE BOX ENTITLED "DESCRIPTION OF UNITS TENDERED" UNDER THE COLUMNS ENTITLED "NUMBER OF UNITS TENDERED FOR PREFERRED OP UNITS," "NUMBER OF UNITS TENDERED FOR COMMON OP UNITS," AND "NUMBER OF UNITS TENDERED FOR CASH" SHALL BE DEEMED TO HAVE TENDERED ALL UNITS FOR PREFERRED OP UNITS PURSUANT TO THE OFFER. WHEN TENDERING BY FACSIMILE, PLEASE TRANSMIT ALL PAGES OF THE LETTER OF TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A, B AND C). THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 2. SIGNATURE REQUIREMENTS. INDIVIDUAL AND JOINT OWNERS -- After carefully reading and completing the Letter of Transmittal, to tender Units, Limited Partners must sign at the "X" in the Signature Box of the Letter of Transmittal. The signature(s) must correspond exactly with the names printed (or corrected) on the front of the Letter of Transmittal. IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE LIMITED PARTNER (OR BENEFICIAL OWNER IN THE CASE OF AN IRA), NO SIGNATURE GUARANTEE ON THE LETTER OF TRANSMITTAL IS REQUIRED. If any tendered Units are registered in the names of two or more joint owners, all such owners must sign this Letter of Transmittal. IRA'S/ELIGIBLE INSTITUTIONS -- FOR UNITS HELD IN AN IRA ACCOUNT, THE BENEFICIAL OWNER SHOULD SIGN IN THE SIGNATURE BOX AND NO SIGNATURE GUARANTEE IS REQUIRED. Similarly, if Units are tendered for the account of a member firm of a registered national security exchange, a member firm of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required. TRUSTEES, CORPORATIONS, PARTNERSHIPS AND FIDUCIARIES -- Trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or other persons acting in a fiduciary or representative capacity must sign at the "X" in the Signature Box and have their signatures guaranteed by an Eligible Institution by completing the signature guarantee set forth in the Signature Box of the Letter of Transmittal. If the Letter of Transmittal is signed by trustees, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or others acting in a fiduciary or representative capacity, such persons should, in addition to having their signatures guaranteed, indicate their title in the Signature Box and must submit proper evidence satisfactory to the Purchaser of their authority to so act (see Instruction 3 below). 3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be completed on the Letter of Transmittal, additional documentation may be required by the Purchaser under certain circumstances including, but not limited to, those listed below. Questions on documentation should be directed to the Information Agent at its telephone number set forth herein. DECEASED OWNER (JOINT TENANT) -- Copy of death certificate. DECEASED OWNER (OTHERS) -- Copy of death certificate (see also Executor/Administrator/Guardian below). 172 EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for executor or administrator; and (a) a copy of applicable provisions of the will (title page, executor(s)' powers, asset distribution); or (b) estate distribution documents. ATTORNEY-IN-FACT -- Current power of attorney. CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of authority to act. Partnership should furnish copy of the partnership agreement. TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration, a copy of the cover page of the trust or pension plan, along with a copy of the section(s) setting forth names and powers of trustee(s) and any amendments to such sections or appointment of successor trustee(s). 4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued in the name of a person other than the person signing the Signature Box of the Letter of Transmittal or if consideration is to be sent to someone other than such signer or to an address other than that set forth on the Letter of Transmittal in the box entitled "Description of Units Tendered," the appropriate boxes on the Letter of Transmittal should be completed. 5. TAX CERTIFICATIONS. Limited Partner(s) tendering Units to the Purchaser pursuant to the Offer must furnish the Purchaser with the Limited Partner's taxpayer identification number ("TIN") and certify as true, under penalties of perjury, the representations in Box A, Box B and, if applicable, Box C. By signing the Signature Box, the Limited Partner(s) certifies that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" and the representations made in Box A, Box B and, if applicable, Box C, are correct. U.S. PERSONS. A Limited Partner that is a U.S. citizen OR a resident alien individual, a domestic corporation, a domestic partnership, a domestic trust or a domestic estate (collectively, "U.S. Persons"), as those terms are defined in the Code, should follow the instructions below with respect to certifying Box A and Box B. BOX A -- SUBSTITUTE FORM W-9. Part (i), Taxpayer Identification Number -- Tendering Limited Partners must certify to the Purchaser the TIN printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered." If a correct TIN is not provided, penalties may be imposed by the Internal Revenue Service (the "IRS"), in addition to the Limited Partner being subject to backup withholding. Part (ii), Backup Withholding -- In order to avoid 31% Federal income tax backup withholding, the tendering Limited Partner must certify, under penalties of perjury, that such Limited Partner is not subject to backup withholding. Certain Limited Partners (including, among others, all corporations and certain exempt non-profit organizations) are not subject to backup withholding. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (II), UNLESS YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING. WHEN DETERMINING THE TIN TO BE FURNISHED, PLEASE REFER TO THE FOLLOWING AS A GUIDE: Individual accounts -- should reflect owner's TIN. Joint accounts -- should reflect the TIN of the owner whose name appears first. Trust accounts -- should reflect the TIN assigned to the trust. IRA custodial accounts -- should reflect the TIN of the custodian (not necessary to provide). Custodial accounts for the benefit of minors -- should reflect the TIN of the minor. Corporations, partnership or other business entities -- should reflect the TIN assigned to that entity. By signing the Signature Box, the Limited Partner(s) certifies that the TIN as printed (or corrected) on the front of the Letter of Transmittal is correct. BOX B -- FIRPTA AFFIDAVIT -- Section 1445 of the Code requires that each limited partner transferring interests in a partnership with real estate assets meeting certain criteria certify under penalty of perjury the representations made in Box B, or be subject to withholding of tax equal to 10% of the purchase price for interests purchased. Tax withheld under Section 1445 of the Code is not an additional tax. If withholding results in an overpayment of tax, a refund may be obtained from the IRS. PART (I) SHOULD BE 173 CHECKED ONLY IF THE TENDERING LIMITED PARTNER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN. CORPORATIONS SHOULD INSERT THE JURISDICTION OF INCORPORATION IN THE BLANK PROVIDED IN PART (III). BOX C -- FOREIGN PERSONS -- In order for a tendering Limited Partner who is a Foreign Person (i.e., not a U.S. Person, as defined above) to qualify as exempt from 31% backup withholding, such foreign Limited Partner must certify, under penalties of perjury, the statement in Box C of this Letter of Transmittal, attesting to that Foreign Person's status by checking the box preceding such statement. UNLESS THE BOX IS CHECKED, SUCH LIMITED PARTNER WILL BE SUBJECT TO 31% WITHHOLDING OF TAX UNDER SECTION 1445 OF THE CODE. 6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of a Letter of Transmittal and other required documents will be determined by the Purchaser and such determination will be final and binding. The Purchaser's interpretation of the terms and conditions of the Offer (including these Instructions for this Letter of Transmittal) will be final and binding. The Purchaser will have the right to waive any irregularities or conditions as to the manner of tendering. Any irregularities in connection with tenders, unless waived, must be cured within such time as the Purchaser shall determine. This Letter of Transmittal will not be valid until any irregularities have been cured or waived. Neither the Purchaser nor the Information Agent are under any duty to give notification of defects in a Letter of Transmittal and will incur no liability for failure to give such notification. 8. ASSIGNEE STATUS. Assignees must provide documentation to the Information Agent which demonstrates, to the satisfaction of the Purchaser, such person's status as an assignee. 9. TRANSFER TAXES. Except as set forth in this Instruction 9, the Purchaser will pay, or cause to be paid, all transfer taxes, if any, in respect of the Unit(s) accepted for payment pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if tendered Units are registered in the name of, any person other than the person signing the Letter of Transmittal, the amount of any transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. [10. MINIMUM TENDERS. A Limited Partnership may tender any or all of his or her Units; provided, however, that because of restrictions in the Partnership's Limited Partnership Agreement, a partial tender of Units must be for a minimum of [five] Units (other than Limited Partners who hold Units in an Individual Retirement Account or Keogh Plan). Tenders of fractional Units will be permitted only by a Limited Partner who is tendering all Units owned by that Limited Partner.] 174 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
========================================================== FOR THIS TYPE OF ACCOUNT: GIVE THE TAXPAYER IDENTIFICATION NUMBER OF -- - ---------------------------------------------------------- 1. An individual account. The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, the first individual on the account 3. Husband and wife (joint The actual owner of account) the account or, if joint funds, either person 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person(3) 7. a The usual revocable The grantor trustee(1) savings trust account (grantor is also trustee) b So-called trust account The actual owner(1) that is not a legal or valid trust under state law 8. Sole proprietorship account The owner(4) 9. A valid trust, estate, or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
========================================================== (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number or employer identification number. (4) Show your individual name. You may also enter your business name. You may use your social security number or employer identification number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 175 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a) of the Code. - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441 of the Code. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to an appropriate nominee. - Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt interest dividends under section 852 of the Code). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451 of the Code. - Payments of mortgage interest to you. - Payments made to an appropriate nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(A), 6045, and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS -- If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 20% on any portion of an underpayment attributable to that failure unless there is a clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE 176 The Information Agent for the offer is: River Oaks Partnership Services, Inc. By Mail: P.O. Box 2065 S. Hackensack, N.J. 07606-2065 By Overnight Courier: 111 Commerce Road Carlstadt, N.J. 07072 Attn.: Reorganization Dept. By Hand: 111 Commerce Road Carlstadt, N.J. 07072 Attn.: Reorganization Dept. By Telephone: Toll Free (818) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 177 [LETTERHEAD OF AIMCO PROPERTIES, L.P.] Dear Limited Partner: We are offering to acquire your units of limited partnership interest in . Our offer presents you with the following four options, which you are free to accept or reject in any combination you like: 1. You may tender each of your units in exchange for of our % Tax-Deferral Partnership Preferred Units. Generally, this exchange may be made without recognizing any taxable gain on your units. After one year, you may exchange, the Preferred Units for, at our option, either cash or Preferred Stock or Class A Common Stock of Apartment Investment and Management Company, ("AIMCO"). AIMCO is a real estate investment trust. We are the partnership through which AIMCO conducts substantially all of its operations. AIMCO's Class A Common Stock is listed, and its Preferred Stock is expected to be listed, on the New York Stock Exchange. 2. You may tender each of your units in exchange for of our Tax-Deferral Partnership Common Units. Generally, this exchange may also be made without recognizing any taxable gain on your units. After one year, you may exchange the Common Units for, at our option, either cash or shares of AIMCO's Class A Common Stock, which is listed on the New York Stock Exchange. 3. You may tender each of your units in exchange for $ in cash, in which case you may recognize a gain or loss for federal income tax purposes, on your units. 4. You may do nothing, retain your units and continue to participate in gains, losses and distributions, if any, on your partnership units. If you choose to retain your units, your rights as a holder of units will remain unchanged. We are offering to acquire no more than % of all outstanding units in your partnership. You will not be required to pay any commissions or fees in connection with any disposition of your units pursuant to our offer. There are advantages and disadvantages to you of accepting or declining to accept the offer. The terms of the offer are more fully described in the enclosed materials. These documents describe the material risks and opportunities associated with the offer, including certain tax considerations. Please review these documents carefully. The general partner of your partnership, which is an affiliate of ours, has substantial conflicts of interest with respect to the offer. Accordingly, the general partner of your partnership makes no recommendation to you as to whether you should tender or refrain from tendering your units in the offer. We have retained Robert A. Stanger & Co. to render an opinion as to the fairness of the offer consideration from a financial point of view. A copy of such opinion is enclosed as Appendix A to the enclosed Prospectus Supplement. If you desire to tender any of your units in response to our offer, you should complete and sign the enclosed letter of transmittal in accordance with the enclosed instructions and mail or deliver the signed letter of transmittal and any other required documents to River Oaks Partnership Services, Inc., which is acting as the Information Agent in connection with our offer, at the address set forth on the back cover of the enclosed Prospectus Supplement. The offer will expire at 5:00 p.m. Denver, Colorado time on 1998, unless extended. If you have questions or require further information, please call the Information Agent, toll free, at (888) 349-2005. Very truly yours, AIMCO PROPERTIES, L.P. 178 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES INCOME PROPERTIES, LTD. II IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $260.00 per unit and an affiliate estimated the net liquidation value of your units to be $249.78 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 179 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Income Properties, Ltd. II................. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44
PAGE ---- Accounting Treatment......................... S-44 CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77
i 180
PAGE ---- YOUR PARTNERSHIP............................... S-78 General...................................... S-78 Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 181 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Income Properties, Ltd. II. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 182 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 183 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid no distributions for the six months ended June 30, 1998, but subsequently paid a distribution of 14.88 per unit. We do not expect your partnership to pay any further distributions during 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 184 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $30.00 per unit to $177.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $260.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $249.78 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 185 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must continue to hold at least ten units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 186 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 187 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 188 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $260.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $249.78 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $30.00 per unit to $177.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 189 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 190 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 191 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 192 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 13.3% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 193 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 194 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 195 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 196 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 197 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $30 to $177 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 198 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of the Net Cash from Operations (as defined in your partnership's agreement of limited partnership) for its services as general partner of your partnership and also receives reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursement totaling $86,000 for the first six months of 1998. The property manager received management fees of $172,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Income Properties, Ltd. II was organized on October 12, 1982, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 199 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently includes the following three residential apartment complexes: Deer Creek Apartments, a 288-unit complex in Plainsboro, New Jersey; Georgetown Apartments, a 200-unit complex in South Bend, Indiana; and Landmark Apartments, a 292-unit complex in Raleigh, North Carolina. Additionally, your partnership's investment portfolio also includes a 100% leasehold interest in Atlanta Crossing Shopping Center, a 169,168 square-foot retail center in Montgomery, Alabama and a 14.4% interest in the Princeton Meadows Joint Venture, which owns a golf course in Princeton, New Jersey. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of August 1, 1998, there were 99,784 units of limited partnership interest issued and outstanding, which were held of record by 3,320 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 200 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 201
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 202 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 203
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 204 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 205 SUMMARY FINANCIAL INFORMATION OF ANGELES INCOME PROPERTIES, LTD. II The summary financial information of Angeles Income Properties, Ltd. II for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Income Properties, Ltd. II for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES INCOME PROPERTIES, LTD. II
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------------- ----------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues.................................... $ 3,711 $ 3,598 $ 7,261 $ 6,868 $ 8,378 Net Income/(Loss)................................. 202 190 145 (270) 853 Net income per limited partnership unit........... 2.00 1.88 1.44 (2.68) 14.06 ------- ------- ------- ------- ------- Distribution per limited partnership unit......... -- 9.92 9.92 -- -- ------- ------- ------- ------- -------
JUNE 30, DECEMBER 31, ---------------------------- ----------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation...... $11,038 $11,603 $11,338 $12,065 $13,257 Total Assets...................................... 16,800 17,011 16,868 17,858 16,370 Mortgage Notes Payable............................ 18,100 18,290 18,197 18,375 16,723 Partners' Capital/(Deficit)....................... (2,027) (2,184) (2,229) (1,374) (1,104)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING ANGELES INCOME PARTNERSHIP PROPERTIES, LTD. II ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $ 0.00(1) $9.92
- --------------- (1) Your partnership subsequently paid a distribution of $14.88 per unit. S-25 206 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $30.00 per unit to $177.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $260.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $249.98 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 207 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 208 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. Your partnership paid no distributions with respect to your units for the six months ended June 30, 1998 but subsequently paid a distribution of 14.88 per unit. We do not expect your partnership to pay any further distributions during 1998. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 209 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 13.3% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 210 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. On August 13, 1998, IPT, then an affiliate of Insignia and now our affiliate, commenced a tender offer to acquire units at a cash purchase price of $175.00 per unit. Prior to such tender offer, on August 7, 1998, Madison Partnership Liquidity Investors 64, LLC ("Madison"), which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $130.00 per unit. Prior to the tender offer by Madison, IPT commenced a tender offer for $160.00 per unit and purchased 8,908 units in June 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 211 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 212 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 213 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 214 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least ten units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 215 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 216 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 217 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 218 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 219 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 220 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 221 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 222 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 6,262 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 6.3% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 223 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 224 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 225 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 226 received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax S-46 227 basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 228 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Deer Creek Apartments.............. $ % $ Georgetown Apartments.............. Landmark Apartments................ Atlanta Crossing Shopping Center... Princeton Meadows Joint Venture (14.4% interest).................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other S-48 229 costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 230 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. Your partnership paid no distributions with respect to your units for the six months ended June 30, 1998 but subsequently paid a distribution of $14.88 per unit. We do not expect your partnership to pay any further distributions during 1998. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating S-50 231 Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 232 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $30.00 to $177.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 16,547 units (representing approximately 16.6% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES INCOME PROPERTIES, LTD. II REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $ 75.00 $177.00 (c) (c) Second Quarter.................................. 30.00 156.30 $120.00 $153.00 First Quarter................................... 80.00 144.00 130.00 131.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 76.00 147.00 80.00 135.00 Third Quarter................................... 70.00 145.00 115.00 145.00 Second Quarter.................................. 30.00 143.00 110.00 135.00 First Quarter................................... 30.00 125.00 100.00 127.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 10.00 122.00 80.00 122.00 Third Quarter................................... 38.70 110.00 71.00 112.00 Second Quarter.................................. 24.00 140.00 -- -- First Quarter................................... 15.00 62.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 233 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Each of your partnership's wholly-owned properties was appraised in 1998, 1997 and 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"). According to each appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 S-53 234 (known as "FIRREA"). The estimated market value of the fee simple estates of each property specified in those appraisal reports is as listed in the chart below. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other property interests in the past three years.
PROPERTY NAME 1998 1997 1996 ------------- ----------- ----------- ----------- Deer Creek Apartments............... $12,200,000 $12,000,000 $11,000,000 Georgetown Apartments............... 8,500,000 7,500,000 7,200,000 Landmark Apartments................. 13,500,000 13,300,000 11,500,000 Atlanta Crossing Shopping Center.... 5,100,000 4,700,000 4,750,000
General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $260.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $213.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 235 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 236 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 237 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 238 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 239 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2037. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests in conduct any business that may be lawfully conducted by residential, commercial and industrial real properties a limited partnership organized pursuant to the either directly or indirectly through partnership or Delaware Revised Uniform Limited Partnership Act (as joint ventures with others. Subject to restrictions amended from time to time, or any successor to such contained in your partnership's agreement of limited statute) (the "Delaware Limited Partnership Act"), partnership, your partnership may perform all acts provided that such business is to be conducted in a necessary, advisable or convenient to the business of manner that permits AIMCO to be qualified as a REIT, your partnership including borrowing money and creating unless AIMCO ceases to qualify as a REIT. The AIMCO liens. 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.
S-59 240 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner, in its sold discretion, may make contributions as may be established by the general subsequent offerings of your partnership's securities, partner in its sole discretion. The net capital including offerings of additional units and limited contribution need not be equal for all OP Unitholders. partnership interests. The capital contribution need No action or consent by the OP Unitholders is required not be equal for all limited partners and no action or in connection with the admission of any additional OP consent is required in connection with the admission of Unitholder. See "Description of OP Units -- Management any additional limited partners. The general partner by the AIMCO GP" in the accompanying Prospectus. may not issue units in exchange for property. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property from your participant upon such terms and subject to such partnership or sell or lease any real property to your conditions consistent with the AIMCO Operating Part- partnership either directly or through an affiliate. nership Agreement and applicable law as the general However, the general partner or an affiliate may partner, in its sole and absolute discretion, believes purchase property in its own name and temporarily hold to be advisable. Except as expressly permitted by the title thereto for the purpose of facilitating its AIMCO Operating Partnership Agreement, neither the acquisition or financing by your partnership if (1) the general partner nor any of its affiliates may sell, property is purchased by your partnership for a price transfer or convey any property to the AIMCO Operating no greater than the cost of the property to the general Partnership, directly or indirectly, except pursuant to partner or its affiliate, (2) no difference exists in transactions that are determined by the general partner the interest rates of the loans secured by the property in good faith to be fair and reasonable. at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may also lease property to a partnership sponsored by the general partner or its affiliates so long as the terms of the lease are comparable to, or no less favorable to your partnership than those offered to and accepted by unrelated persons for comparable space and contained in a written contract which precisely describes the subject matter thereof and all compensation to be paid, which contract, if not previously disclosed, must be fully and properly disclosed to all partners. Subject to certain conditions contained in your partnership's agreement of limited partnership, your partnership may invest the assets of your partnership in entities affiliated with the general partner of your partnership. Your partnership may not make loans to the general partner or its affiliates but the general partner and its affiliates may lend money to your partnership provided that the interest and other financing
S-60 241 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP charges on loans to your partnership may not be in excess of rates and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate that is charged from time to time by Bank of America National Trust and Savings Association , Los Angeles, California on 90-day unsecured loans to responsible and substantial commercial borrowers. In addition, an affiliate of your general partner may lend money to your partnership to fund its acquisitions if your partnership does not have sufficient cash proceed to invest so long as: (1) such loan is made at interest rates and charges not in excess of the rates and charges then currently being paid by the lender for the borrowed funds, but in no event may the interest rate and charges exceed the interest rate and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate that is charged from time to time by Bank of America National Trust and Savings Association, Los Angeles, California on 90-day unsecured loans to re- sponsible and substantial commercial borrowers, (2) your partnership agrees to repay promptly such loan from the offering of units, but in no event later than one year from the date of purchase of the property, (3) such interim financing is not in an amount that exceeds 80% of the purchase price of the property and (4) the affiliate of the general partner agrees to purchase the property, as promptly as practical from your partnership at a price equal to the cost of the property to your partnership in the event that your partnership is unable to make sufficient payments to repay the loan for any reason. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wrap-around" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies Subject to the provisions of your partnership's The AIMCO Operating Partnership Agreement contains no agreement of limited partnership, the general partner restrictions on borrowings, and the general partner has of your partnership is authorized to borrow money and full power and authority to borrow money on behalf of to secure such debt by mortgage, pledge or other lien the AIMCO Operating Partnership. The AIMCO Operating on any of the assets of your partnership. The general Partnership has credit agreements that restrict, among partner of your partnership may not, in connection with other things, its ability to incur indebtedness. See the acquisition of properties subject the properties "Risk Factors -- Risks of Significant Indebtedness" in acquired by your partnership to one or more mortgages, the accompanying Prospectus. deeds of trust or other security interest; provided, however, that your partnership will be permitted to acquire a property subject to existing secured financ- ing so long as the outstanding balance of such mortgage indebtedness assumed by your partnership does not exceed 40% of the purchase price of the property and may borrow money from third parties if it does not have sufficient funds if certain conditions are met. Your partnership may not acquire any real property which, at the date of acquisition, is subject to indebtedness secured by a mortgage, deed of trust or other security interest on the real property having an unpaid balance immediately after the acquisition equal to more than 40% of the purchase price of the real property or refinance any property by incurring indebtedness in excess of 40% of the then appraised value of the property for the first twelve months after purchase or 80% thereafter. The general partner may not acquire a property subject to or subject a property to finance which represents 10% of more of the purchase price
S-61 242 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP which contains a provision of a balloon payment due and payable prior to the earlier of (1) ten years from the date your partnership acquires the property, or the inception of the loan, whichever is later or (2) two years beyond the estimated holding period for the property, but in no event prior to seven years from the date of acquisition of the property or the inception of the loan, whichever is later. Your partnership may not issue debt securities to the public. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, and California law, the general management power over the business and affairs of the partner has the right, power and authority, on behalf AIMCO Operating Partnership. The OP Unitholders have of your partnership, and in its name, to exercise all the right to vote on certain matters described under of the rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without approval of the limited partners. Units -- Voting Rights" below. The general partner may Limited partners have no right to participate in the not be removed by the OP Unitholders with or without management or conduct of your partnership's business or cause. affairs nor any power or authority to act for or on behalf of our partnership in any respect whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in
S-62 243 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interest of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. As any such indemnity provided all losses, claims, damages, liabilities, joint or will be paid, from and only to the extent of, several, expenses (including legal fees), fines, partnership assets. In the event that a claim for settlements and other amounts incurred in connection indemnification against liabilities arising under the with any actions relating to the operations of the Securities Act of 1933, as amended (other than for the AIMCO Operating Partnership, as set forth in the AIMCO payment by your partnership of expenses incurred or Operating Partnership Agreement. The Delaware Limited paid by the general partner in the successful defense Partnership Act provides that subject to the standards of any action, suit or proceeding) is asserted by the and restrictions, if any, set forth in its partnership general partner in connection with the units, your agreement, a limited partnership may, and shall have partnership will, unless in the opinion of its counsel the power to, indemnify and hold harmless any partner the matter is settled by controlling precedent, submit or other person from and against any and all claims and to a court of appropriate jurisdiction the question of demands whatsoever. It is the position of the whether such indemnification by it is against public Securities and Exchange Commission that indemnification policy as expressed in the Securities Act of 1933, as of directors and officers for liabilities arising under amended and will inform the court of the position of the Securities Act is against public policy and is the SEC with respect to such indemnification. Your unenforceable pursuant to Section 14 of the Securities partnership has agreed to be governed by the court's Act of 1933. final adjudication of such issue.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner, the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership and such other conditions as are controlling interest in the AIMCO Operating Partner- set forth in your partnership's agreement of limited ship. Additionally, the AIMCO Operating Partnership partnership are satisfied. The general partner may Agreement contains restrictions on the ability of OP admit additional general partners without the consent Unitholders to transfer their OP Units. See of the limited partners. No limited partner may "Description of OP Units -- Transfers and Withdrawals" substitute a transferee of his units in such limited in the accompanying Prospectus. partner's place without the consent of the general partner which may be withheld at the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership, (3) deletes or adds any provision required the OP Unitholders. The general partner will seek the by any applicable law, (4) reflects any reduction of written consent of the OP Unitholders on the proposed the partners' capital accounts or (5) reflects a change amendment or will call a meeting to vote thereon. See in the name or the location of the principal place of "Description of OP Units -- Amendment of the AIMCO business of your partnership. Your partnership's agree- Operating Partnership Agreement" in the accompanying ment of limited partnership may not be amended to Prospectus. change your partnership to a general partnership, extend the term or your
S-63 244 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive an annual management fee equal to 10% of the its services as general partner of the AIMCO Operating Net Cash from Operations for its services as general Partnership. However, the general partner is entitled partner of your partnership and may also receive to payments, allocations and distributions in its reimbursement for expenses incurred in such capacity. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner may delegate any or all of its powers, rights Operating Partnership Agreement expressly limits the and obligations under your partnership's agreement of liability of the general partner by providing that the limited partners and in furtherance of any such general partner, and its officers and directors delegation may appoint, employ or
S-64 245 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP contract with any person for the account of your will not be liable or accountable in damages to the partnership for the transaction of the business of your AIMCO Operating Partnership, the limited partners or partnership, which person may, under the supervision of assignees for errors in judgment or mistakes of fact or the general partner, perform such acts or services for law or of any act or omission if the general partner or your partnership as the general partnership may such director or officer acted in good faith. See approve. The general partner and its affiliates may "Description of OP Units -- Fiduciary Responsibilities" acquire real properties for their own account, or in the accompanying Prospectus. engage in the acquisition, development, operation or management of real estate on behalf of other entities, including business ventures similar to, related to or in direct or indirect competition with any business of your partnership. However, the general partner and its affiliates will, if your partnership has funds available for investment, grant a right of first refusal to your partnership for those real property investment opportunities which meet your partnership's investment objectives and policies before they acquire these properties for their own accounts. Neither your partnership nor any other partner will have any right in or to such other business ventures of the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-65 246 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner and ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. In such event, your of the Partnership Unit Desig- acquisition, sale, transfer, partnership may be continued by the nation of the Preferred OP Units exchange or other disposition of remaining general partner if, in that materially and adversely any assets of the AIMCO Operating the opinion of counsel to your affects the rights or preferences Partnership (including, but not partnership, such election would of the holders of the Preferred OP limited to, the exercise or grant not jeopardize your partnership's Units. The creation or issuance of of any conversion, option, status as a partnership for tax any class or series of partnership privilege or subscription right or purposes. If no general partner units, including, without any other right available in remains, your partnership may limitation, any partnership units connection with any assets at any continue if, within ninety days of that may have rights senior or time held by the AIMCO Operating the retirement, the limited superior to the Preferred OP Units, Partnership) or the merger, partners holding more than 50% of shall not be deemed to materially consolidation, reorganization or the units elect a substitute adversely affect the rights or other combination of the AIMCO general partner who is willing to preferences of the holders of Operating Partnership with or into continue your partnership. Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as de- fined in the Delaware Limited Partnership Act, agree in writing, in their sole and
S-66 247 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re-
S-67 248 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS deemed, purchased or otherwise "Description of OP acquired for consideration, nor Units -- Distributions" in the shall any other cash or other accompanying Prospectus. property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fraction unit and if on any securities exchange. The transferability of the OP Units. such assignment is less than all of Preferred OP Units are subject to Until the expiration of one year the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least ten Partnership Agreement. subject to certain exceptions, such units, except in certain circum- OP Unitholder may not transfer all stances, (2) the assignee and the Pursuant to the AIMCO Operating or any portion of its OP Units to assignor execute, acknowledge and Partnership Agreement, until the any transferee without the consent deliver to the general partner a expiration of one year from the of the general partner, which written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignment taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor without the consent of the general conditions specified in the AIMCO receives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as determined one year, such holders of Preferred "Description of OP Units -- by the general partner to comply OP Units has the right to transfer Transfers and Withdrawals" in the with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substituted as a the satisfaction of certain After the first anniversary of limited partner if: (1) the general conditions specified in the AIMCO becoming a holder of Common OP partner consents in writing, which Operating Partnership Agreement, Units, an OP Unitholder has the consent may be granted or denied in including the general partner's right, subject to the terms and the sole discretion of the general right of first refusal. conditions of the AIMCO Operating partner, (2) the transferor elects Partnership Agreement, to require to become a substitute limited After a one-year holding period, a the AIMCO Operating Partnership to partner by delivering to the holder may redeem Preferred OP redeem all or a portion of the general partner a written notice, Units and receive in exchange Common OP Units held by such party executed and acknowledged by the therefor, at the AIMCO Operating in exchange for a cash amount based assignor and assignee of such Partnership's option, (i) subject on the value of shares of Class A election, (3) the assignee executes to the terms of any Senior Units, Common Stock. See "Description of and acknowledges such other cash in an amount equal to the OP Units -- Redemption Rights" in instruments that the general Liquidation Preference of the the accompanying Prospectus. Upon partner may require including an Preferred OP Units tendered for receipt of a notice of redemption, adoption of your partnerships's redemption, (ii) a number of shares the AIMCO Operating Partnership agreement of limited partnership, of Class I Cumulative Preferred may, in its sole and absolute and (4) assignee pays the Stock of AIMCO that pay an discretion but subject to the partnership for its expenses aggregate amount of dividends yield restrictions on the ownership of incurred in the transaction. equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 249 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 250 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 251 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 252 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 253 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 254 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 255 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 256 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 257 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of your partnership's net cash from operations for its services as general partner of your partnership and also receives reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursement totalling $217,000 in 1996, $229,000 in 1997 and $86,000 for the first six months of 1998. The property manager received management fees of $322,000 in 1996, $335,000 in 1997 and $172,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 258 YOUR PARTNERSHIP GENERAL Angeles Income Properties, Ltd. II was organized on October 12, 1982, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently includes the following three residential apartment complexes: Deer Creek Apartments, a 288-unit complex in Plainsboro, New Jersey; Georgetown Apartments, a 200-unit complex in South Bend, Indiana; and Landmark Apartments, a 292-unit complex in Raleigh, North Carolina. Additionally, your partnership's investment portfolio also includes a 100% leasehold interest in Atlanta Crossing Shopping Center, a 169,168 square-foot retail center in Montgomery, Alabama and a 14.4% interest in the Princeton Meadows Joint Venture, which owns a golf course in Princeton, New Jersey. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of August 1, 1998, there were 99,784 units of limited partnership interest issued and outstanding, which were held of record by 3,320 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated March 31, 1983, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had begun selling their properties "at different time periods" after the investments were made. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2037, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to S-78 259 liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933, as amended (other than for the payment by your partnership of expenses incurred or paid by the general partner in the successful defense of any action, suit or proceeding) is asserted by the general partner in connection with the units, your partnership will, unless in the opinion of its counsel the matter is settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended and will inform the court of the position of the SEC with respect to such indemnification. Your partnership has agreed to be governed by the court's final adjudication of such issue. S-79 260 Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $500.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 9.92 January 1, 1998 - June 30, 1998............................. 0.00 Subsequent to June 30, 1998................................. 14.88
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 13.3% interest in your partnership, including 12,858 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received reimbursement for expenses in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $396,160 1995........................................................ 261,210 1996........................................................ 217,000 1997........................................................ 229,000 1998 (through June 30)...................................... 86,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $348,202 1995........................................................ 326,338 1996........................................................ 322,000 1997........................................................ 335,000 1998 (through June 30)...................................... 172,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 261 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 262 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Income Properties, Ltd. II appearing in Angeles Income Properties, Ltd. II Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 263 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 264 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 265 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 266 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 271 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 272 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES INCOME PROPERTIES, LTD. III IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $124.00 per unit and an affiliate estimated the net liquidation value of your units to be $122.18 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 273 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Income Properties, Ltd. III................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78
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PAGE ---- Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 275 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Income Properties, Ltd. III. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 276 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 277 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $2.85 per unit for the six months ended June 30, 1998, but is not expected to make any further distributions in 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 278 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $186.07 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $124.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $122.18 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 279 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must continue to hold at least ten units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 280 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 281 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 282 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $124.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $122.18 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $185.07 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 283 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 284 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 285 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 286 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 0.51% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such S-12 287 assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. S-13 288 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. S-14 289 Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 290 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 291 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $20.00 to $186.07 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 292 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of the Net Cash from Operations for each year for its services as general partner of your partnership and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $48,000 for the first six months of 1998. The property manager received management fees of $35,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Income Properties, Ltd. III was organized on May 26, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 293 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently includes the following two properties: Lake Forest Apartments, a 136-unit complex in Brandon, Mississippi; and Poplar Square Shopping Center, a 118,474 square-foot commercial complex in Medford, Oregon. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998 there were 86,778 units of limited partnership interest issued and outstanding, which were held of record by 3,412 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 294 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation.......................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses......... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (161) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............................ (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income....................... 11,350 1,341 8,676 523 658 123 Interest expense...................... (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 5,609 (86) 4,636 -- -- -- Amortization of goodwill.............. (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,526 -- 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 210 107 147 94 56 48 Total owned apartment units (end of period)............................. 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities............................ (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S Predecessors(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities............................ (924) (16,352)
S-20 295
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities.................. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)................ 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding..................... 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets............................ 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S Predecessors(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities.................. $(1,032) $ 14,114 Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 296 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 297
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 298 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 299 SUMMARY FINANCIAL INFORMATION OF ANGELES INCOME PROPERTIES, LTD. III The summary financial information of Angeles Income Properties, Ltd. III for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Income Properties, Ltd. III for the years ended December 31, 1997 and 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES INCOME PROPERTIES, LTD. III
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------- 1998 1997 1997 1996 1995 -------- -------- ------ ------- ------- (IN THOUSANDS EXCEPT UNIT DATA) OPERATING DATA: Total Revenues................................... $ 917 $ 922 $1,888 $ 1,772 $ 2,262 Net Income/(Loss)................................ (24) 6,844 6,738 (1,075) 224 Net income per limited partnership unit.......... (0.28) 78.08 76.87 (12.26) 2.56 ------ ------ ------ ------- ------- Distributions per limited partnership unit....... 2.85 -- 15.43 -- -- ------ ------ ------ ------- -------
JUNE 30, DECEMBER 31, --------------- -------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation..... $4,921 $5,456 $5,235 $ 5,578 $ 6,062 Total Assets..................................... 6,724 8,563 7,058 7,632 8,305 Mortgage Notes Payable, including Accrued Interest....................................... 3,733 3,777 3,755 3,797 3,447 Partners' Capital/(Deficit)...................... 2,862 4,594 2,888 (2,250) (1,175)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING ANGELES INCOME PROPERTIES, PARTNERSHIP LTD. III ------------------------- --------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ----------- ------------- Cash distributions per unit outstanding..... $1.125 $1.85 $2.85 $15.43
S-25 300 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $186.07 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $124.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $122.18 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 301 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 302 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Distributions with respect to your units for the six months ended June 30, 1998 were $2.85 per unit. We do not expect your partnership to pay any further distributions with respect to your units in 1998. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 303 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.51% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 304 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, an affiliate of IPT, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired units (representing approximately % of the number outstanding) at a cash purchase price of $75.00 per unit on , 1998. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $35.00 per unit and purchased shares in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 305 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 306 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 307 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 308 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least ten units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 309 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 310 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 311 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 312 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 313 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 314 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 315 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 316 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 3,479 units in your partnership have been transferred during the twelve months ending December 31, 1997 (representing approximately 4.01% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 317 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 318 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer was filed on behalf of the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 319 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 320 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 321 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 322 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Lake Forest Apartments..................... $ % $ Poplar Square Shopping Center..............
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 323 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 324 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Distributions with respect to your units for the six months ended June 30, 1998 were $2.85. We do not expect your partnership to pay any further distributions with respect to your partnership units. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating S-50 325 Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 326 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $20.00 to $186.07 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to June 30, 1998 an aggregate of 10,938 units (representing less than 12.61% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES INCOME PROPERTIES, LTD. III REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $30.00 $ 60.00 (c) (c) Second Quarter.................................. 30.00 186.07 52.00 52.00 First Quarter................................... 30.00 65.00 52.00 52.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 20.00 65.00 43.00 54.00 Third Quarter................................... 36.00 65.00 49.00 61.00 Second Quarter.................................. 20.00 52.00 48.00 65.00 First Quarter................................... 20.00 50.00 45.00 55.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 20.00 50.00 40.00 49.00 Third Quarter................................... 15.10 42.00 35.00 50.00 Second Quarter.................................. 19.00 45.00 -- -- First Quarter................................... 10.00 100.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 327 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Each of your partnership's wholly owned properties was appraised in 1998, 1997 and 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to each appraisal report, the scope of the appraisals included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial S-53 328 Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estates of each property specified in those appraisal reports is as listed in the chart below. Copies of the summaries of the appraisals have been filed as exhibits to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC.
PROPERTY NAME 1998 1997 1996 ------------- ---------- ---------- ---------- Lake Forest Apartments................................... $5,300,000 $4,000,000 $3,550,000 Poplar Square Shopping Center............................ $5,250,000 $4,000,000 $7,500,000 ---------- ---------- ----------
General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $124.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $109,000. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. S-54 329 We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also S-55 330 performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated S-56 331 to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-57 332 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 333 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2038. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests in conduct any business that may be lawfully conducted by residential, commercial and industrial real properties a limited partnership organized pursuant to the either directly or indirectly through partnership or Delaware Revised Uniform Limited Partnership Act (as joint ventures with others. Subject to restrictions amended from time to time, or any successor to such contained in your partnership's agreement of limited statute) (the "Delaware Limited Partnership Act"), partnership, your partnership may perform all acts provided that such business is to be conducted in a necessary, advisable or convenient to the business of manner that permits AIMCO to be qualified as a REIT, your partnership including borrowing money and creating unless AIMCO ceases to qualify as a REIT. The AIMCO liens. 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.
S-59 334 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner, in its sole discretion, may make contributions as may be established by the general subsequent offerings of your partnership's securities, partner in its sole discretion. The net capital including offerings of additional units and limited contribution need not be equal for all OP Unitholders. partnership interests. The capital contribution need No action or consent by the OP Unitholders is required not be equal for all limited partners and no action or in connection with the admission of any additional OP consent is required in connection with the admission of Unitholder. See "Description of OP Units -- Management any additional limited partners. The general partner by the AIMCO GP" in the accompanying Prospectus. may not issue units in exchange for property. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance of other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership by a majority vote of Partnership may transfer assets to joint ventures, the limited partners to terminate such employment, with limited liability companies, partnerships, or without cause, and without penalty to your corporations, business trusts or other business partnership, upon no greater than sixty days notice to entities in which it is or thereby becomes a the employed party. The general partner may not participant upon such terms and subject to such purchase or lease any real property or acquire any loan conditions consistent with the AIMCO Operating Part- or lease from your partnership or sell or lease any nership Agreement and applicable law as the general real property, loan or lease to your partnership either partner, in its sole and absolute discretion, believes directly or through an affiliate. However, the general to be advisable. Except as expressly permitted by the partner or an affiliate may purchase property in its AIMCO Operating Partnership Agreement, neither the own name and temporarily hold title thereto for the general partner nor any of its affiliates may sell, purpose of facilitating its acquisition or financing by transfer or convey any property to the AIMCO Operating your partnership if (1) the property is purchased by Partnership, directly or indirectly, except pursuant to your partnership for a price no greater than the cost transactions that are determined by the general partner of the property to the general partner or its in good faith to be fair and reasonable. affiliates, (2) no difference exists in the interest rates of the loans secured by the property at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may also lease property to a partnership sponsored by the general partner or its affiliates so long as the terms of the lease are comparable to, or no less favorable to your partnership than those offered to and accepted by unrelated persons for comparable space and contained in a written contract which precisely describes the subject matter thereof and all compensation to be paid, which contract, if not previously disclosed, must be fully and property disclosed to all partners. Subject to certain conditions contained in your partnership's agreement of limited partnership, your partnership may invest the assets of your partnership in entities affiliated with the general partner of your partnership. Your partnership may not make loans to the general partner or its affiliates but the general
S-60 335 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner and its affiliates may lend money to your partnership provided that the interest and other financing charges on loans to your partnership may not be in excess of rates and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate that is charged from time to time by Bank of America National Trust and Savings Association, Los Angeles, California on 90-day unsecured loans to responsible and substantial commercial borrowers. In addition, an affiliate of your general partner may lend money to your partnership to fund its acquisitions if your partnership does not have sufficient cash proceed to invest so long as: (1) such loan is made at interest rates and charges not in excess of the rates and charges then currently being paid by the lender for the borrowed funds, but in no event may the interest rate and charges exceed the interest rate and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate that is charged from time to time by Bank of America National Trust and Savings Association, Los Angeles, California on 90-day unsecured loans to responsible and substantial commercial borrowers, (2) your partnership agrees to repay promptly such loan from the offering of units, but in no event later than one year from the date of purchase of the property, (3) such interim financing is not in an amount that exceeds 80% of the purchase price of the property and (4) the affiliate of the general partner agrees to purchase the property, as promptly as practical from your partnership at a price equal to the cost of the property to your partnership in the event that your partnership is unable to make sufficient payments to repay the loan for any reason. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of Partnership has credit agreements that restrict, among properties subject the properties acquired by your other things, its ability to incur indebtedness. See partnership to one or mortgages, deeds of trust or "Risk Factors -- Risks of Significant Indebtedness" in other security interest, provided, however, that your the accompanying Prospectus. partnership will be permitted to acquire a property subject to existing secured financing so long as the outstanding balance of such mortgage indebtedness assumed by your partnership does not exceed 40% of the purchase price of the property and may borrow money from third parties if it does not have sufficient funds if certain conditions are met. The general partner may not acquire any real property which, at the date of acquisition, is subject to indebtedness secured by a mortgage, deed of trust or other security interest on real property having an unpaid principal balance immediately after the acquisition equal to more than 40% of the purchase price of the real property, or refinance any property be incurring indebtedness in excess of 40% of the then appraised value of the property for the first twelve months after purchase and 80% thereafter. The general partner may not acquire a property subject to or subject a property to financing which represents 10% of more of the purchase price
S-61 336 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP which contains a provision of a balloon payment due and payable prior to the earlier of (1) ten years from the date your partnership acquires the property or the inception of the loan, whichever is later of (2) two years beyond the estimated holding period for the property, but in no event prior to seven years from the date of acquisition of the property or the inception of the loan, whichever is later. Your partnership may not issue debt securities to the public. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership and California law, the general management power over the business and affairs of the partner has the right, power and authority, on behalf AIMCO Operating Partnership. The OP Unitholders have of your partnership, and in its name, to exercise all the right to vote on certain matters described under of the rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without approval by the limited partners. Units -- Voting Rights" below. The general partner may Limited partners have no right to participate in the not be removed by the OP Unitholders with or without management or conduct of your partnership's business or cause. affairs nor any power or authority to act for or on behalf of your partnership in any respect whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in
S-62 337 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In the event that a claim for indemnification settlements and other amounts incurred in connection against liabilities arising under the Securities Act of with any actions relating to the operations of the 1933, as amended (other than for the payment by your AIMCO Operating Partnership, as set forth in the AIMCO partnership of expenses incurred or paid by the general Operating Partnership Agreement. The Delaware Limited partner in the successful defense of any action, suit Partnership Act provides that subject to the standards or proceeding) is asserted by the general partner in and restrictions, if any, set forth in its partnership connection with the units, your partnership will, agreement, a limited partnership may, and shall have unless in the opinion of its counsel the matter is the power to, indemnify and hold harmless any partner settled by controlling precedent, submit to a court of or other person from and against any and all claims and appropriate jurisdiction the question of whether such demands whatsoever. It is the position of the indemnification by it is against public policy as Securities and Exchange Commission that indemnification expressed in the Securities Act of 1933, as amended and of directors and officers for liabilities arising under will inform the court of the position of the SEC with the Securities Act is against public policy and is respect to such indemnification. Your partnership has unenforceable pursuant to Section 14 of the Securities agreed to be governed by the court's final adjudication Act of 1933. of such issue.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner, the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership and such other conditions as are controlling interest in the AIMCO Operating Partner- set forth in your partnership's agreement of limited ship. Additionally, the AIMCO Operating Partnership partnership are satisfied. The general partner may Agreement contains restrictions on the ability of OP admit additional general partners without the consent Unitholders to transfer their OP Units. See of the limited partners. No limited partner may "Description of OP Units -- Transfers and Withdrawals" substitute a transferee of his units in such limited in the accompanying Prospectus. partner's place without the consent of the general partner which may be withheld at the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership, (3) deletes or adds any provision required the OP Unitholders. The general partner will seek the by any applicable law, (4) reflects any reduction of written consent of the OP Unitholders on the proposed the partners' capital accounts, (5) reflects a change amendment or will call a meeting to vote thereon. See in the name or the location of the principal place of "Description of OP Units -- Amendment of the AIMCO business of your partnership, (6) reduces the required Operating Partnership Agreement" in the accompanying minimum investment in your partnership to effect the Prospectus. participation of your partnership in programs designated to facilitate
S-63 338 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP secondary trading of the units. Your partnership's agreement of limited partnership may not be amended to change your partnership to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive an annual management fee equal to 10% of the its services as general partner of the AIMCO Operating Net Cash from Operations for each year for its services Partnership. However, the general partner is entitled as general partner of your partnership and may also to payments, allocations and distributions in its receive reimbursement for expenses incurred in such capacity as general partner of the AIMCO Operating capacity. Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not for the debts, negligence, no OP Unitholder has personal liability for liabilities, or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion,
S-64 339 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner and its affiliates may acquire real properties believes are advisable. The AIMCO Operating Partnership for their own account, or engage in the acquisition, Agreement expressly limits the liability of the general development, operation or management of real estate on partner by providing that the general partner, and its behalf of other entities, including business ventures officers and directors will not be liable or similar to, related to or in direct or indirect accountable in damages to the AIMCO Operating competition with any business of your partnership. Partnership, the limited partners or assignees for However, the general partner and its affiliates will, errors in judgment or mistakes of fact or law or of any if your partnership has funds available for investment, act or omission if the general partner or such director grant a right of first refusal to your partnership for or officer acted in good faith. See "Description of OP those real property investment opportunities which meet Units -- Fiduciary Responsibilities" in the your partnership's investment objectives and policies accompanying Prospectus. before they acquire these properties for their own accounts. Neither your partnership nor any other partner will have any right in or to such other business ventures of the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-65 340 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner, approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner, ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership, and holders of at least 50% of the terminate the employment of an outstanding Preferred OP Units will Under the AIMCO Operating Partner- affiliate of your general partner. be necessary for effecting any ship Agreement, the general partner amendment of any of the provisions has the power to effect the A general partner may cause the of the Partnership Unit Desig- acquisition, sale, transfer, dissolution of your partnership by nation of the Preferred OP Units exchange or other disposition of retiring. In such event, your that materially and adversely any assets of the AIMCO Operating partnership may be continued by the affects the rights or preferences Partnership (including, but not remaining general partner if, in of the holders of the Preferred OP limited to, the exercise or grant the opinion of counsel to your Units. The creation or issuance of of any conversion, option, partnership, such election would any class or series of partnership privilege or subscription right or not jeopardize your partnership's units, including, without any other right available in status as a partnership for tax limitation, any partnership units connection with any assets at any purposes. If no general partner that may have rights senior or time held by the AIMCO Operating remains, your partnership may superior to the Preferred OP Units, Partnership) or the merger, continue if, within ninety days of shall not be deemed to materially consolidation, reorganization or the retirement, the limited adversely affect the rights or other combination of the AIMCO partners holding more than 50% of preferences of the holders of Operating Partnership with or into the units elect a substitute Preferred OP Units. With respect to another entity, all without the general partner who is willing to the exercise of the above de- consent of the OP Unitholders. continue your partnership scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to con-
S-66 341 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tinue 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re-
S-67 342 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS deemed, purchased or otherwise "Description of OP acquired for consideration, nor Units -- Distributions" in the shall any other cash or other accompanying Prospectus. property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fractional unit and on any securities exchange. The transferability of the OP Units. if such assignment is less than all Preferred OP Units are subject to Until the expiration of one year of the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least ten Partnership Agreement. subject to certain exceptions, such units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignment taking place in the pre- Units, subject to certain expiration of one year, such OP ceding 12 months, in the opinion of exceptions, such holder of Unitholder has the right to counsel to your partnership, does Preferred OP Units may not transfer transfer all or any portion of its not result in termination of your all or any portion of its Pre- OP Units to any person, subject to partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor re- without the consent of the general conditions specified in the AIMCO ceives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have compiled with discretion. After the expiration of right of first refusal. See such other conditions as determined one year, such holders of Preferred "Description of OP Units -- by the general partner to comply OP Units has the right to transfer Transfers and Withdrawals" in the with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substituted as a the satisfaction of certain After the first anniversary of limited partner if: (1) the general conditions specified in the AIMCO becoming a holder of Common OP partner consents in writing, which Operating Partnership Agreement, Units, an OP Unitholder has the consent may be granted or denied in including the general partner's right, subject to the terms and the sole discretion of the general right of first refusal. conditions of the AIMCO Operating partner, (2) the transferor elects Partnership Agreement, to require to become a substitute limited After a one-year holding period, a the AIMCO Operating Partnership to partner by delivering to the holder may redeem Preferred OP redeem all or a portion of the general partner a written notice, Units and receive in exchange Common OP Units held by such party executed and acknowledged by the therefor, at the AIMCO Operating in exchange for a cash amount based assignor and assignee of such Partnership's option, (i) subject on the value of shares of Class A election, (3) the assignee executes to the terms of any Senior Units, Common Stock. See "Description of and acknowledges such other cash in an amount equal to the OP Units -- Redemption Rights" in instruments that the general Liquidation Preference of the the accompanying Prospectus. Upon partner may require including an Preferred OP Units tendered for receipt of a notice of redemption, adoption of your partnership's redemption, (ii) a number of shares the AIMCO Operating Partnership agreement of limited partnership, of Class I Cumulative Preferred may, in its sole and absolute and (4) the assignee pays the Stock of AIMCO that pay an discretion but subject to the partnership for its expenses aggregate amount of dividends yield restrictions on the ownership of incurred in the transaction. equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 343 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 344 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 345 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 346 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 347 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 348 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 349 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 350 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 351 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of the Net Cash from Operations for each year for its services as general partner of your partnership and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $225,000 in 1996, $197,000 in 1997 and $48,000 for the first six months of 1998. The property manager received management fees of $64,000 in 1996, $70,000 in 1997 and $35,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 352 YOUR PARTNERSHIP GENERAL Angeles Income Properties, Ltd. III was organized on May 26, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently includes the following two properties: Lake Forest Apartments, a 136-unit complex in Brandon, Mississippi; and Poplar Square Shopping Center, a 118,474 square-foot commercial complex in Medford, Oregon. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 86,778 units of limited partnership interest issued and outstanding, which were held of record by 3,412 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated March 7, 1984, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth or sixth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2038, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-78 353 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is now a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933, as amended (other than for the payment by your partnership of expenses incurred or paid by the general partner in the successful defense of any action, suit or proceeding) is asserted by the general partner in connection with the units, your partnership will, unless in the opinion of its counsel the matter is settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended and will inform the court of the position of the SEC with respect to such indemnification. Your partnership has agreed to be governed by the court's final adjudication of such issue. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-79 354 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $500.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 15.43 January 1, 1998 - June 30, 1998............................. 2.85
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 0.51% interest in your partnership, including 5 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received reimbursement for expenses in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $333,022 1995........................................................ 234,670 1996........................................................ 225,000 1997........................................................ 197,000 1998 (through June 30)...................................... 48,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $67,520 1995........................................................ 70,973 1996........................................................ 64,000 1997........................................................ 70,000 1998 (through June 30)...................................... 35,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 355 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of S-81 356 AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Income Properties, Ltd. III appearing in Angeles Income Properties, Ltd. III Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 357 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1995, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 358 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 359 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 360 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 364
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 365 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 366 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES INCOME PROPERTIES, LTD. IV IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $131.00 per unit and an affiliate estimated the net liquidation value of your units to be $128.52 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 367 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Income Properties, Ltd. IV................. S-25 Angeles Income Properties, Ltd. IV........... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42
PAGE ---- Fees and Expenses............................ S-44 Accounting Treatment......................... S-44 CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77
i 368
PAGE ---- YOUR PARTNERSHIP............................... S-78 General...................................... S-78 Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 369 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Income Properties, Ltd. IV. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 370 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 371 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid any distributions on your units since 1991. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 372 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $5.00 per unit to $225.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $131.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $128.52 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 373 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must continue to hold at least ten units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 374 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 375 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 376 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's [properties] may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $131.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $128.52 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $5.00 per unit to $225.00 per unit over the period from January 1, 1997 through September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 377 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 378 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 379 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 380 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately an 8.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 381 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 382 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 383 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 384 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 385 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $5.00 to $225.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 386 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of the Net Cash from Operations (as defined in your partnership's agreement of limited partnership) for each year for its services as general partner of your partnership so long as the limited partners receive 7.25% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $109,000 for the six months ended June 30, 1998. The property manager received management fees of $68,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's [properties] and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. S-18 387 YOUR PARTNERSHIP Angeles Income Properties, Ltd. IV was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two commercial properties: Eastgate Marketplace, a 147,000 square-foot complex in Walla Walla, Washington; and Factory Merchants Mall, a 200,000 square-foot complex in Pigeon Forge, Tennessee. The general partner of your partnership is Angeles Realty Corporation, L.P., which is a majority-owned subsidiary of AIMCO. Insignia Commercial Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of August 1, 1998, there were 131,585 units of limited partnership interest issued and outstanding, which were held of record by 5,386 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 388 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 389
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 390 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 391
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 392 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 393 SUMMARY FINANCIAL INFORMATION OF ANGELES INCOME PROPERTIES, LTD. IV The summary financial information of Angeles Income Properties, Ltd. IV for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Income Properties, Ltd. IV for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES INCOME PROPERTIES, LTD. IV
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ----------------- ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 2,225 $ 2,159 $ 4,557 $ 4,349 $ 6,411 Net Income (Loss)........................................... (196) 13,881 13,782 (2,285) 1,447 Net Income per limited partnership unit..................... (1.46) 103.38 102.64 (16.99) 10.76 Distributions per limited partnership unit.................. -- -- -- -- --
JUNE 30, DECEMBER 31, ----------------- ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $10,447 $11,011 $10,799 $ 11,357 $ 12,281 Total Assets................................................ 15,705 16,156 16,128 16,128 16,623 Notes Payable............................................... 15,138 15,300 15,221 15,376 14,469 Partners' Capital(Deficit).................................. 291 586 487 (13,295) (11,010)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING ANGELES INCOME PARTNERSHIP PROPERTIES, LTD. IV ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 394 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $5.00 per unit to $225.00 per unit from January 1, 1997 through September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $131.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $128.52 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 395 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 396 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid distributions with respect to your units since 1991. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a S-28 397 deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately an 8.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its S-29 398 ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, Cooper River, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired units (representing approximately % of the number outstanding) at a cash purchase price of $75.00 per unit on , 1998. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $35.00 per unit and purchased units in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your S-30 399 partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. S-31 400 - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 401 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 402 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least ten units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 403 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 404 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 405 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 406 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 407 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 408 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 409 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 410 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 6,781 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 5.15% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 411 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 412 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by of the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 413 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 414 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 415 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 416 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Eastgate Marketplace..................... $ % $ Factory Merchants Mall...................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 417 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 418 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Your partnership has not paid any distributions with respect to your units since 1991. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 419 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 420 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $5.00 to $225.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from July 1, 1996 to June 30, 1998 an aggregate of 15,285 units (representing less than 11.7% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1995 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES INCOME PROPERTIES, LTD. IV REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter.................................... $30.00 $ 77.05 (c) (c) Second Quarter................................... 30.00 150.00 $55.00 $67.00 First Quarter.................................... 5.00 83.50 63.00 72.00 Fiscal Year Ended December 31, 1997: Fourth Quarter................................... 25.00 90.00 50.00 64.00 Third Quarter.................................... 25.00 89.00 57.00 75.00 Second Quarter................................... 20.75 225.00 63.00 92.00 First Quarter.................................... 25.00 90.00 65.00 91.00 Fiscal Year Ended December 31, 1996: Fourth Quarter................................... 25.00 90.00 75.00 90.00 Third Quarter.................................... 17.50 89.00 43.00 79.00 Second Quarter................................... 30.00 84.77 -- -- First Quarter.................................... 35.00 50.00 -- --
S-52 421
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1995: Fourth Quarter................................... 28.00 50.00 -- -- Third Quarter.................................... 20.00 45.00 -- -- Second Quarter................................... 1.25 43.50 -- -- First Quarter.................................... 5.00 31.50 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The S-53 422 liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Each of your partnership's properties was appraised in 1998 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"). In addition, Eastgate Marketplace Shopping Center was appraised in each of the two prior years. According to each appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estates of each property specified in those appraisal reports is as listed in the chart below. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC.
PROPERTY NAME 1998 1997 1996 ------------- ----------- ---------- ---------- Eastgate Marketplace............................... $ 4,800,000 $4,100,000 $3,000,000 Factory Merchants Mall............................. $24,500,000 n/a n/a
General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $131.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $93.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." S-54 423 ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, S-55 424 number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your S-56 425 partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. S-57 426 Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 427 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash From Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests, conduct any business that may be lawfully conducted by including debt interest, in residential, commercial and a limited partnership organized pursuant to the industrial real properties either directly or Delaware Revised Uniform Limited Partnership Act (as indirectly through partnership or joint ventures with amended from time to time, or any successor to such others. Subject to restrictions contained in your statute) (the "Delaware Limited Partnership Act"), partnership's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-59 428 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner, in its sole discretion, may make contributions as may be established by the general subsequent offerings of your partnership's securities, partner in its sole discretion. The net capital including offerings of additional units and limited contribution need not be equal for all OP Unitholders. partnership interests. The capital contribution need No action or consent by the OP Unitholders is required not be equal for all limited partners and no action or in connection with the admission of any additional OP consent is required in connection with the admission of Unitholder. See "Description of OP Units -- Management any additional limited partners. The general partner by the AIMCO GP" in the accompanying Prospectus. may not issue units in exchange for property. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership by a majority vote of Partnership may transfer assets to joint ventures, the limited partners to terminate such employment, with limited liability companies, partnerships, or without cause, and without penalty to your corporations, business trusts or other business partnership, upon no greater than sixty days notice to entities in which it is or thereby becomes a the employed party. The general partner may not participant upon such terms and subject to such purchase or lease any real property or acquire any loan conditions consistent with the AIMCO Operating Part- or lease from your partnership or sell or lease any nership Agreement and applicable law as the general real property, loan or lease to your partnership either partner, in its sole and absolute discretion, believes directly or through an affiliate. However, the general to be advisable. Except as expressly permitted by the partner or an affiliate may purchase property in its AIMCO Operating Partnership Agreement, neither the own name and temporarily hold title thereto for the general partner nor any of its affiliates may sell, purpose of facilitating its acquisition or financing by transfer or convey any property to the AIMCO Operating your partnership if (1) the property is purchased by Partnership, directly or indirectly, except pursuant to your partnership for a price no greater than the cost transactions that are determined by the general partner of the property to the general partner or its in good faith to be fair and reasonable. affiliate, (2) no difference exists in the interest rates of the loans secured by the property at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may also lease property to a partnership sponsored by the general partner or its affiliates so long as the terms of the lease are comparable to, or no less favorable to your partnership than those offered to and accepted by unrelated persons for comparable space and contained in a written contract which precisely describes the subject matter thereof and all compensation to be paid, which contract, if not previously disclosed, must be fully and properly disclosed to all partners. If the general partner or its affiliates sublease such space, all rent received in excess of the rent paid to your partnership will be paid to your partnership. Subject to certain conditions contained in your partnership's agreement of limited partnership, your partnership may invest the assets of your partnership in entities
S-60 429 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP affiliated with the general partner of your partnership. Your partnership may not make loans to the general partner or its affiliates but the general partner and its affiliates may lend money to your partnership provided that the interest and other financing charges on loans to your partnership are not in excess of amounts paid by the general partner for borrowed funds (provided, however, that such interest rates and charges are not in excess of rates and charges which would be charged by unrelated lending institutions on comparable loans for the same purpose, in the same locality of the property (if such loan is made in connection with a particular property). Such loans may not require a prepayment charge or penalty if such loan is secured by a mortgage or encumbrance of your partnership's property. In addition, an affili- ate of your general partner may lend money to your partnership to fund its acquisitions if your partnership does not have sufficient cash proceeds to invest so long as: (1) such loan is made at interest rates and charges not in excess of the rates and charges then currently being paid by the lender for the borrowed funds, but in no event may the interest rate and charges exceed the interest rate and charges which would be charged by unrelated lending institutions on comparable loans for the same purpose, in the same locality of the property (if such loan is made in connection with a particular property), (2) your partnership agrees to repay promptly such loan from the offering of units, but in no event later than one year from the date of purchase of the property, (3) such interim financing is not in an amount that exceeds 80% of the purchase price of the property and (4) the affiliate of the general partner agrees to purchase the property, as promptly as practical from your partnership at a price equal to the cost of the property to your partnership in the event that your partnership is unable to make sufficient payments to repay the loan for any reason. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of all Partnership has credit agreements that restrict, among properties, subject all such properties acquired by other things, its ability to incur indebtedness. See your partnership to one or more mortgages, deeds of "Risk Factors -- Risks of Significant Indebtedness" in trust or other security interest which would exceed an the accompanying Prospectus. aggregate amount equal to 40% of the purchase price of all properties, provided; however, that your partnership is permitted to acquire a particular property subject to existing secured financing and incur new financing in connection with such acquisition so long as the outstanding balance of such mortgage indebtedness assumed and incurred by your partnership does not exceed 50% of the purchase price of such property. The general partner may not acquire a property subject to or subject a property to financing which represents 25% or more of the purchase price or secondary financing which represents 10% or more of the purchase price which contains a provision of a balloon payment due and payable prior to the earlier of (1) ten years from
S-61 430 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP the date your partnership acquired the property or (2) two years beyond the estimated holding period for the property, but in no event prior to seven years from the date of acquisition of the property. All financing incurred by your partnership will generally provide for periodic payments in an amount which would be sufficient to self-liquidate the loans over periods of not more than thirty years. Your partnership may not issue debt securities to the public. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and will be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership and California law, the general management power over the business and affairs of the partner has the right, power and authority, on behalf AIMCO Operating Partnership. The OP Unitholders have of your partnership, and in its name, to exercise all the right to vote on certain matters described under of the rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without approval by the limited partners. Units -- Voting Rights" below. The general partner may Limited partners have no right to participate in the not be removed by the OP Unitholders with or without management or conduct of your partnership's business or cause. affairs nor any power or authority to act for or on behalf of your partnership in any respect whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in
S-62 431 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In no event, however, will such indemnification settlements and other amounts incurred in connection cover liabilities arising under state securities laws with any actions relating to the operations of the and the Securities Act of 1933, as amended. AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership 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 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner, the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership and such other conditions as are controlling interest in the AIMCO Operating Partner- set forth in your partnership's agreement of limited ship. Additionally, the AIMCO Operating Partnership partnership are satisfied. The general partner may Agreement contains restrictions on the ability of OP admit additional general partners without the consent Unitholders to transfer their OP Units. See of the limited partners. No limited partner may "Description of OP Units -- Transfers and Withdrawals" substitute a transferee of his units in such limited in the accompanying Prospectus. partner's place without the consent of the general partner which may be withheld at the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership, (3) deletes or adds any provision required the OP Unitholders. The general partner will seek the by any applicable law, (4) reflects any reduction of written consent of the OP Unitholders on the proposed the partners' capital accounts, (5) reflects a change amendment or will call a meeting to vote thereon. See in the name or the location of the principal place of "Description of OP Units -- Amendment of the AIMCO business of your partnership or (6) reduces the Operating Partnership Agreement" in the accompanying required minimum investment in your partnership to Prospectus. effect the participation of your partnership in programs designed to facilitate secon-
S-63 432 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP dary trading of the units. Your partnership's agreement of limited partnership may not be amended to change your partnership to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. Any amendment which diminishes the rights of the general partner may not be made without the consent of the general partner or the limited partners owning more than 50% of the units. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive 10% of the Net Cash from Operations (as defined its services as general partner of the AIMCO Operating in your partnership's agreement of limited partnership) Partnership. However, the general partner is entitled for each year for its services as general partner of to payments, allocations and distributions in its your partnership so long as the limited partners capacity as general partner of the AIMCO Operating receive 7.25% per annum on their capital investment and Partnership. In addition, the AIMCO Operating Part- may also receive reimbursement for expenses incurred in nership is responsible for all expenses incurred such capacity. 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other general partner may not
S-64 433 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP employ or permit others to employ such funds or assets conflict avoidance agreements with various affiliates in any manner except for the benefit of your of the AIMCO Operating Partnership and the general partnership nor commingle funds of your partnership partner, on such terms as the general partner, in its with any other person. The general partner and its sole and absolute discretion, believes are advisable. affiliates may acquire real properties for their own The AIMCO Operating Partnership Agreement expressly account, or engage in the acquisition, development, limits the liability of the general partner by operation or management of real estate on behalf of providing that the general partner, and its officers other entities, including business ventures similar to, and directors will not be liable or accountable in related to or in direct or indirect competition with damages to the AIMCO Operating Partnership, the limited any business of your partnership. However, the general partners or assignees for errors in judgment or partner and its affiliates will, if your partnership mistakes of fact or law or of any act or omission if has funds available for investment, grant a right of the general partner or such director or officer acted first refusal to your partnership for those real in good faith. See "Description of OP property investment opportunities which meet your Units -- Fiduciary Responsibilities" in the partnership's investment objectives and policies before accompanying Prospectus. they acquire these properties for their own account. Neither your partnership nor any other partner will have any right in or to such other business ventures of the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-65 434 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions, terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner; ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership; and holders of at least 50% of the terminate the employment of an outstanding Preferred OP Units will Under the AIMCO Operating Partner- affiliate of your general partner. be necessary for effecting any ship Agreement, the general partner amendment of any of the provisions has the power to effect the A general partner may cause the of the Partnership Unit Desig- acquisition, sale, transfer, dissolution of your partnership by nation of the Preferred OP Units exchange or other disposition of retiring. In such event, your that materially and adversely any assets of the AIMCO Operating partnership may be continued by the affects the rights or preferences Partnership (including, but not remaining general partner if, in of the holders of the Preferred OP limited to, the exercise or grant the opinion of counsel to your Units. The creation or issuance of of any conversion, option, partnership, such election would any class or series of partnership privilege or subscription right or not jeopardize your partnership's units, including, without any other right available in status as a partnership for tax limitation, any partnership units connection with any assets at any purposes. If no general partner that may have rights senior or time held by the AIMCO Operating remains, your partnership may superior to the Preferred OP Units, Partnership) or the merger, continue if, within ninety days of shall not be deemed to materially consolidation, reorganization or the retirement, the limited adversely affect the rights or other combination of the AIMCO partners holding more than 50% of preferences of the holders of Operating Partnership with or into the units elect a substitute Preferred OP Units. With respect to another entity, all without the general partner who is willing to the exercise of the above de- consent of the OP Unitholders. continue your partnership. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in
S-66 435 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash
S-67 436 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fraction unit and if on any securities exchange. The transferability of the OP Units. such assignment is less than all of Preferred OP Units are subject to Until the expiration of one year the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least ten Partnership Agreement. subject to certain exceptions, such units, except in certain circum- OP Unitholder may not transfer all stances, (2) the assignee and the Pursuant to the AIMCO Operating or any portion of its OP Units to assignor execute, acknowledge and Partnership Agreement, until the any transferee without the consent deliver to the general partner a expiration of one year from the of the general partner, which written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignment taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor without the consent of the general conditions specified in the AIMCO receives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as deter- one year, such holders of Preferred "Description of OP Units -- mined by the general partner to OP Units has the right to transfer Transfers and Withdrawals" in the comply with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substituted as a the satisfaction of certain After the first anniversary of limited partner if: (1) the general conditions specified in the AIMCO becoming a holder of Common OP partner consents in writing, which Operating Partnership Agreement, Units, an OP Unitholder has the consent may be granted or denied in including the general partner's right, subject to the terms and the sole discretion of the general right of first refusal. conditions of the AIMCO Operating partner, (2) the transferor elects Partnership Agreement, to require to become a substitute limited After a one-year holding period, a the AIMCO Operating Partnership to partner by delivering to the holder may redeem Preferred OP redeem all or a portion of the general partner a written notice, Units and receive in exchange Common OP Units held by such party executed and acknowledged by the therefor, at the AIMCO Operating in exchange for a cash amount based assignor and assignee of such Partnership's option, (i) subject on the value of shares of Class A election, (3) the assignee executes to the terms of any Senior Units, Common Stock. See "Description of and acknowledges such other cash in an amount equal to the OP Units -- Redemption Rights" in instruments that the general Liquidation Preference of the the accompanying Prospectus. Upon partner may require including an Preferred OP Units tendered for receipt of a notice of redemption, adoption of your partnership's redemption, (ii) a number of shares the AIMCO Operating Partnership agreement of limited partnership, of Class I Cumulative Preferred may, in its sole and absolute and (4) the assignee pays the Stock of AIMCO that pay an discretion but subject to the partnership for its expenses aggregate amount of dividends yield restrictions on the ownership of incurred in the transaction. equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 437 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 438 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 439 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 440 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 441 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 442 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 443 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 444 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 445 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of the Net Cash from Operations (as defined in your partnership's agreement of limited partnership) for each year for its services as general partner of your partnership so long as the limited partners receive 7.25% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $242,000 in 1996, $372,000 in 1997 and $109,000 for the first six months of 1998. The property manager received management fees of $131,000 in 1996, $129,000 in 1997 and $68,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 446 YOUR PARTNERSHIP GENERAL Angeles Income Properties, Ltd. IV was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two commercial properties: Eastgate Marketplace, a 147,000 square-foot complex in Walla Walla, Washington; and Factory Merchants Mall, a 200,000 square-foot complex in Pigeon Forge, Tennessee. The general partner of your partnership is Angeles Realty Corporation, L.P., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of August 1, 1998, there were 131,585 units of limited partnership interest issued and outstanding, which were held of record by 5,386 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated April 25, 1985, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that opportunities for refinancing, sale or other disposition will not be available within four years of acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In S-78 447 addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts of failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In no event, however, will such indemnification cover liabilities arising under state securities laws and the Securities Act of 1933, as amended. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS Your partnership has paid no distributions since 1991. The original cost per unit was $500.00. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately an 8.2% interest in your partnership, including 8,374 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. S-79 448 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $497,966 1995........................................................ 334,171 1996........................................................ 242,000 1997........................................................ 372,000 1998 (through June 30)...................................... 109,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $123,405 1995........................................................ 171,218 1996........................................................ 131,000 1997........................................................ 129,000 1998 (through June 30)...................................... 68,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility S-80 449 provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Income Properties, Ltd. IV appearing in Angeles Income Properties, Ltd. IV Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 450 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1995, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 451 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 452 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 453 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership, are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 456
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 457
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 458 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 459 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES INCOME PROPERTIES, LTD. 6 IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $394.00 per unit and an affiliate estimated the net liquidation value of your units to be $381.31 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 460 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Income Properties, Ltd. 6.................. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 DESCRIPTION OF PREFERRED OP UNITS.............. S-70 General...................................... S-70 Ranking...................................... S-70 Distributions................................ S-70 Allocation................................... S-71 Liquidation Preference....................... S-71 Redemption................................... S-72 Voting Rights................................ S-72 Restrictions on Transfer..................... S-72 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-73 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-75 CONFLICTS OF INTEREST.......................... S-78 Conflicts of Interest with Respect to the Offer...................................... S-78 Conflicts of Interest that Currently Exist for Your Partnership....................... S-78 Competition Among Properties................. S-78 Features Discouraging Potential Takeovers.... S-78 Future Exchange Offers....................... S-78 YOUR PARTNERSHIP............................... S-79 General...................................... S-79
i 461
PAGE ---- Additional Information Concerning Your Partnership................................ S-79 Originally Anticipated Term of the Partnership................................ S-79 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-80 Property Management.......................... S-80 Fiduciary Responsibility of the General Partner of Your Partnership................ S-80 Distributions................................ S-81 Beneficial Ownership of Interests in Your Partnership................................ S-81 Compensation Paid to the General Partner and its Affiliates............................. S-81
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-82 LEGAL MATTERS.................................. S-83 EXPERTS........................................ S-83 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 462 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Income Properties, Ltd. 6. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 463 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 464 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid distributions with respect to your units since 1991. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 465 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $13.33 per unit to $237.00 per unit during the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $394.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $381.31 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 466 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must continue to hold at least three units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 467 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 468 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 469 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $394.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $381.31 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $13.33 per unit to $237.00 per unit for the period from January 1, 1997 to September 30, 1996. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 470 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 471 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for the ratings of AIMCO from stable to negative to reflect its concerns surrounding AIMCO's ability to successfully implement its financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO. At the same time, Moody's confirmed its existing rating on AIMCO's preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 472 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 473 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 5.09% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 474 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 475 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 476 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 477 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 478 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $13.33 to $237.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 479 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 10% of the Net Cash From Operations (as defined in your partnership's agreement of limited partnership) for its services as general partner of your partnership and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $157,000 for the first six months of 1998. The property manager received management fees of $180,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Income Properties, Ltd. 6 was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following properties: Lazy Hollow Apartments, a 178-unit apartment complex in Columbia, Maryland; Homestead Apartments, a 168-unit apartment complex in East Lansing, Michigan; Casa Grenada Apartments, a 108-unit apartment complex in Harlington, Texas; Mesa Dunes, a 451-pad mobile home park in Mesa, Arizona; Wakonda Shopping Center, a 147,000 square-foot commercial complex in Des Moines, Iowa; and Town & Center Shopping Center, a 104,000 square-foot commercial complex in Cedar Rapids, Iowa. Additionally, on July 16, 1998, the Partnership sold Whispering Pines Mobile Home Park, a 304-pad mobile home park in Lantana, Florida to an unaffiliated third party for $6,961,000 (net of sales commis- S-18 480 sions), resulting in approximately $1,812,000 of net proceeds to the partnership. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 47,311 units of limited partnership interest issued and outstanding, which were held of record by 4,140 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 481 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 482
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 483 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 484
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 485 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 486 SUMMARY FINANCIAL INFORMATION OF ANGELES INCOME PROPERTIES, LTD. 6 The summary financial information of Angeles Income Properties, Ltd. 6 for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Income Properties, Ltd. 6 for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES INCOME PROPERTIES, LTD. 6
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ---------------- -------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. 3,915 3,901 8,434 9,717 12,803 Net Income/(Loss)........................................... 218 50 836 6,106 (720) Net income (loss) per limited partnership interest.......... 4.56 1.04 17.05 127.59 (15.06) ------ ------ ------ ------ ------ Distributions per limited partnership interest.............. -- -- -- -- -- ------ ------ ------ ------ ------
JUNE 30, DECEMBER 31, ---------------- -------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ 27,320 28,372 27,573 28,770 41,238 Total Assets................................................ 31,883 33,011 31,573 32,811 45,488 Mortgage Notes Payable, including Accrued Interest.......... 23,227 25,294 23,374 25,009 42,687 Partners' Capital/(Deficit)................................. 7,498 6,515 7,280 6,465 359
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING ANGELES INCOME PROPERTIES, PARTNERSHIP LTD. 6 ------------------------- --------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ----------- ------------- Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 487 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $13.33 per unit to $237.00 per unit for the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $394.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $381.31 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 488 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 489 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid any distributions with respect to your units since 1991. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a S-28 490 deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for the ratings of AIMCO from stable to negative to reflect its concerns surrounding AIMCO's ability to successfully implement its financial strategy while maintaining a prudent capital structure as a result of the more difficult general capital market conditions. Moody's noted that AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO, and confirmed its previous ratings related to AIMCO's preferred stock and debt in its shelf registration statement. Moody's indicated that its rating action continues to reflect AIMCO's increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted AIMCO's high level of encumbered properties and material investments in loans to highly leveraged partnerships in which AIMCO owns a general partnership interest. At the same time, Moody's confirmed its existing rating on AIMCO's existing preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P. which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 5.09% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 491 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of , 1998, the AIMCO Operating Partnership has made offers to a number of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, IPT, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired units (representing approximately % of the number outstanding) at a cash purchase price of $235.00 per unit on , 1998. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $120.00 per unit and purchased units in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 492 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 493 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 494 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 495 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least three units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 496 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 497 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 498 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 499 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 500 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 501 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 502 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 503 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1,011 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 2.14% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 504 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 505 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 506 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 507 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 508 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 509 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Lazy Hollow Apartments $ % $ Homestead Apartments Casa Granada Apartments Mesa Dunes Mobile Home Park Wakonda Shopping Center Town & Country Shopping Center
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other S-48 510 costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 511 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid any distributions with respect to your units since 1991. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 512 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 513 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $7.70 to $237.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 4,400 units (representing less than 9.3% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES INCOME PROPERTIES, LTD. 6 REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $105.00 $237.00 (c) (c) Second Quarter.................................. 58.33 221.75 $175.00 $222.00 First Quarter................................... 37.00 183.00 160.00 186.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 13.33 186.30 100.00 163.00 Third Quarter................................... 40.00 190.00 152.00 190.00 Second Quarter.................................. 35.00 183.00 145.00 186.00 First Quarter................................... 25.00 184.00 130.00 183.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 25.00 187.32 172.00 184.00 Third Quarter................................... 13.50 187.00 83.00 178.00 Second Quarter.................................. 14.00 177.53 -- -- First Quarter................................... 7.70 240.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 514 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Each of your partnership's properties was appraised in 1998, 1997 and 1996 by an independent, third party appraiser, Koeppel Tenor Real Estate Services, Inc (the "Appraiser"). According to each appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its reports were prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as S-53 515 "FIRREA"). The estimated market value of the fee simple estates of each property specified in those appraisal reports is as listed in the chart below. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC.
PROPERTY NAME 1998 1997 1996 ------------- ------------ ------------ ------------ Lazy Hollow Apartments............................ $ 7,000,000 $ 7,800,000 $ 8,400,000 Homestead Apartments.............................. $ 6,000,000 $ 6,000,000 $ 5,900,000 Casa Granada Apartments........................... $ 2,400,000 $ 2,200,000 $ 2,200,000 Mesa Dunes Mobile Home Park....................... $ 9,300,000 $ 8,700,000 $ 8,500,000 Wakonda Shopping Center........................... $ 4,150,000 $ 4,050,000 $ 3,900,000 Town & Country Shopping Center.................... $ 3,550,000 $ 3,550,000 $ 3,785,000 ------------ ------------ ------------ Aggregate Appraised Value......................... $ 33,300,000 $ 32,300,000 $ 32,685,000 ============ ============ ============
General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $394.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $341.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 516 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 517 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 518 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 519 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 520 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2037. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests, conduct any business that may be lawfully conducted by including debt interests, in residential, commercial a limited partnership organized pursuant to the and industrial real properties either directly or Delaware Revised Uniform Limited Partnership Act (as indirectly through partnership or joint ventures with amended from time to time, or any successor to such others. Subject to restrictions contained in your statute) (the "Delaware Limited Partnership Act"), partnership's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-59 521 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner, in its sole discretion, may make contributions as may be established by the general subsequent offerings of your partnership's securities, partner in its sole discretion. The net capital including offerings of additional units and limited contribution need not be equal for all OP Unitholders. partnership interests. The capital contribution need No action or consent by the OP Unitholders is required not be equal for all limited partners. The general in connection with the admission of any additional OP partner may not issue units in exchange for property. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership by a majority vote of Partnership may transfer assets to joint ventures, the limited partners to terminate such employment, with limited liability companies, partnerships, or without cause, and without penalty to your corporations, business trusts or other business partnership, upon no greater than sixty days notice to entities in which it is or thereby becomes a the employed party. The general partner may not participant upon such terms and subject to such purchase or lease any real property or acquire any loan conditions consistent with the AIMCO Operating Part- or lease from your partnership or sell or lease any nership Agreement and applicable law as the general real property, loan or lease to your property in its partner, in its sole and absolute discretion, believes own name and temporarily hold title thereto for the to be advisable. Except as expressly permitted by the purpose of facilitating its acquisition or financing by AIMCO Operating Partnership Agreement, neither the your partnership if (1) the property is purchased by general partner nor any of its affiliates may sell, your partnership for a price no greater than the cost transfer or convey any property to the AIMCO Operating of the property to the general partner or its Partnership, directly or indirectly, except pursuant to affiliate, (2) no difference exists in the interest transactions that are determined by the general partner rates of the loans secured by the property at the time in good faith to be fair and reasonable. acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may also lease property to a partnership sponsored by the general partner or its affiliates so long as the terms of the lease are comparable space and contained in a written contract which precisely describes the subject matter thereof and all compensation to be paid, which contract, if not previously disclosed, must be fully and property disclosed to all partners. If the general partner or its affiliates sublease such space, all rent received in excess of the rent paid to your partnership will be paid to your partnership. Subject to certain conditions contained in your partnership's agreement of limited partnership, your partnership may invest the assets of your partnership entitles affiliated with the general partner of your partnership. Your partnership may not make loans to the general partner or its affiliates but the general partner and its affiliates may lend money to your partnership
S-60 522 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP provided that the interest and other financing charges on loans to your partnership may not be in excess of amounts paid by the general partner for borrowed funds (provided, however, that such interest rates and charges are not in excess of rates and charges which would be charged by unrelated lending institutions on comparable loans for the same purpose, in the same locality of the property (if such loan is made in connection with a particular property). Such loans may not require a prepayment charge or penalty if such loan is secured by a mortgage or encumbrance of your partnership's property. In addition, the general partner or an affiliate may lend money to your partnership to fund its acquisitions if your partnership does not have sufficient cash proceed to invest so long as: (1) such loan is made at interest rates and charges not in excess of the rates and charges exceed the interest rate and charges which would be charged by unrelated lending institutions on comparable loans for the same purpose, in the same locality of the property (if such loan is made in connection with a particular property), (2) your partnership agrees to repay promptly such loan from the offering of units, but in no event later than one year from the date of purchase of the property, (3) such interim financing is not in an amount that exceed 80% of the purchase price of the property and (4) the general partner or its affiliate agrees to purchase the property, as promptly as practical from your partnership at a price equal to the cost of the property to your partnership in the event that partnership is unable to make sufficient payments to repay the loan for any reason. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of all Partnership has credit agreements that restrict, among properties, subject all such properties acquired by other things, its ability to incur indebtedness. See your partnership to one or more mortgages, deeds of "Risk Factors -- Risks of Significant Indebtedness" in trust or other security interests which would exceed an the accompanying Prospectus. aggregate amount equal to 50% of the purchase price of all properties; provided, however, that your partnership is permitted to acquire a particular property subject to existing secured financing and incur new financing in connection with such acquisition so long as the outstanding balance of such mortgage indebtedness assumed and incurred by your acquisition so long as the outstanding balance of such mortgage indebtedness assumed and incurred by our partnership does not exceed 50% of the purchase price of such property and, if certain conditions are met, may borrow funds from unaffiliated third parties if your partnership does not have sufficient cash proceeds to invest in acquisitions. The general partner may not acquire any real property which, at the date of acquisition is subject to, or as part of such acquisition incur new indebtedness secured by a mortgage, deed of trust or other security interest on the real property (excluding short-term indebtedness) having an aggregate unpaid principal balance immediately after the acquisition equal to more than 50% of the purchase price of the property.
S-61 523 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP In connection with the refinancing of properties, the general partner of your partnership may not subject all such properties refinanced by your partnership to one or more mortgages or deeds of trust which would exceed an aggregate amount equal to 80% of the aggregate value of such properties as of the dates of such refinancing as determined by the lender. The general partner may not acquire a property subject to or subject a property to financing which represents 25% or more of the purchase price which contains a provision of a balloon payment due and payable prior to the earlier of (1) ten years from the date your partnership acquired the property or (2) two years beyond the estimated holding period for the property, but in no event prior to seven years from the date of acquisition of the property. All financing incurred by your partnership will generally provide for periodic payments in an amount which would be sufficient to self-liquidate the loans over periods of not more than thirty years. Your partnership may not issue debt securities to the public. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership and California law the general management power over the business and affairs of the partner has the right, power and authority, on behalf AIMCO Operating Partnership. The OP Unitholders have of your partnership, and in its name, to exercise all the right to vote on certain matters described under of the rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without approval by the limited partners Units -- Voting Rights" below. The general partner may and all the management powers over the business and not be removed by the OP Unitholders with or without affairs of your partnership will be exclusively vested cause. in the general partner. Limited partners have no right to participate in the management or conduct of your In addition to the powers granted a general partner of partnership's business or affairs nor any power or a limited partnership under applicable law or that are authority to act for or on behalf of your partnership granted to the general partner under any other in any respect whatsoever. 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
S-62 524 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. Notwithstanding any other provision to the settlements and other amounts incurred in connection contrary, the general partner, its affiliates will not with any actions relating to the operations of the be entitled to indemnity for any loss, damage or cost AIMCO Operating Partnership, as set forth in the AIMCO resulting from violations of federal or state Operating Partnership Agreement. The Delaware Limited securities laws unless (1) there is a successful Partnership Act provides that subject to the standards adjudication of the merits of each count involving such and restrictions, if any, set forth in its partnership securities law violations and the court approved agreement, a limited partnership may, and shall have indemnification of litigation costs, (2) such claims the power to, indemnify and hold harmless any partner have been dismissed with prejudice on the merits by a or other person from and against any and all claims and court of competent jurisdiction and the court approves demands whatsoever. It is the position of the indemnification of litigation costs or (3) a court of Securities and Exchange Commission that indemnification competent jurisdiction approves a settlement of such of directors and officers for liabilities arising under claims and the court approves indemnification of the Securities Act is against public policy and is settlement and related costs. In any claim for unenforceable pursuant to Section 14 of the Securities indemnification for federal or state securities law Act of 1933. violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner, the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership and such other conditions as are controlling interest in the AIMCO Operating Partner- set forth in your partnership's agreement of limited ship. Additionally, the AIMCO Operating Partnership partnership are satisfied. The general partner may Agreement contains restrictions on the ability of OP admit additional general partners without the consent Unitholders to transfer their OP Units. See of the limited partners. No limited partner may "Description of OP Units -- Transfers and Withdrawals" substitute a transferee of his units in such limited in the accompanying Prospectus. partner's place without the consent of the limited partners. No limited partner may substitute a transferee of his units in such limited partner's place without the consent of the general partner which may be withheld at the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited the general
S-63 525 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners if such amendment: (1) adds to the partner may, without the consent of the OP Unitholders, representation, duties, or obligations of the general amend the AIMCO Operating Partnership Agreement, partner or its affiliates or surrenders any right or amendments to the AIMCO Operating Partnership Agreement power granted to the general partner or its affiliates require the consent of the holders of a majority of the for the benefit of the limited partner, (2) cures any outstanding Common OP Units, excluding AIMCO and ambiguity, corrects or supplements any provision which certain other limited exclusions (a "Majority in may be inconsistent with any other provision or makes Interest"). Amendments to the AIMCO Operating any other provision with respect to maters or questions Partnership Agreement may be proposed by the general arising under your partnership's agreement of limited partner or by holders of a Majority in Interest. partnership consistent with the provisions of your Following such proposal, the general partner will partnership's agreement of limited partnership, (3) submit any proposed amendment to the OP Unitholders. deletes or adds any provision required by any The general partner will seek the written consent of applicable law, (4) reflects any reduction of the the OP Unitholders on the proposed amendment or will partners' capital accounts and (5) reflect a change in call a meeting to vote thereon. See "Description of OP the name or the location of the principal place of Units -- Amendment of the AIMCO Operating Partnership business of your partnership. Your partnership's agree- Agreement" in the accompanying Prospectus. ment of limited partnership may not be amended to change your partnership to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. Any amendment which diminishes the rights of the general partner may not be made without the consent of the general partner or all of the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive 10% of the Net Cash From Operations (as defined its services as general partner of the AIMCO Operating in your partnership's agreement of limited partnership) Partnership. However, the general partner is entitled for its services as general partner of your partnership to payments, allocations and distributions in its and receives reimbursement for expenses incurred in capacity as general partner of the AIMCO Operating such capacity. Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not for the debts, negligence, no OP Unitholder has personal liability for liabilities, or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-64 526 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Under your partnership's agreement of limited Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner and its affiliates may acquire real properties Operating Partnership Agreement expressly limits the for their own account, or engage in the acquisition, liability of the general partner by providing that the development, operation or management of real estate on general partner, and its officers and directors will behalf of other entities, including business ventures not be liable or accountable in damages to the AIMCO similar to, related to or in direct or indirect Operating Partnership, the limited partners or competition with any business of your partnership. assignees for errors in judgment or mistakes of fact or Neither your partnership nor any other partner will law or of any act or omission if the general partner or have any right in or to such other business ventures of such director or officer acted in good faith. See the income or profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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
S-65 527 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner; ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership and holders of at least 50% of the terminate the employment of an outstanding Preferred OP Units will Under the AIMCO Operating Partner- affiliate of your general partner. be necessary for effecting any ship Agreement, the general partner amendment of any of the provisions has the power to effect the A general partner may cause the of the Partnership Unit Desig- acquisition, sale, transfer, dissolution of your partnership by nation of the Preferred OP Units exchange or other disposition of retiring. In such event, your that materially and adversely any assets of the AIMCO Operating partnership may be continued by the affects the rights or preferences Partnership (including, but not remaining general partner if, in of the holders of the Preferred OP limited to, the exercise or grant the opinion of counsel to your Units. The creation or issuance of of any conversion, option, partnership, such election would any class or series of partnership privilege or subscription right or not jeopardize your partnership's units, including, without any other right available in status as a partnership for tax limitation, any partnership units connection with any assets at any purposes. If no general partner that may have rights senior or time held by the AIMCO Operating remains, your partnership may superior to the Preferred OP Units, Partnership) or the merger, continue if, within ninety days of shall not be deemed to materially consolidation, reorganization or the retirement, the limited adversely affect the rights or other combination of the AIMCO partners holding more than 50% of preferences of the holders of Operating Partnership with or into the units elect a substitute Preferred OP Units. With respect to another entity, all without the general partner who is willing to the exercise of the above de- consent of the OP Unitholders. continue your partnership. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partner-
S-66 528 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operat- ing 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in dis- limited circum-
S-67 529 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS stances, no distributions may be tribute sufficient amounts to declared or paid or set apart for enable the general partner to payment by the AIMCO Operating transfer funds to AIMCO and enable Partnership and no other AIMCO to pay stockholder dividends distribution of cash or other prop- that will (i) satisfy the erty may be declared or made, requirements for qualifying as a directly or indirectly, by the REIT under the Code and the AIMCO Operating Partnership with Treasury Regulations and (ii) avoid respect to any Junior Units, nor any Federal income or excise tax shall any Junior Units be re- liability of AIMCO. See deemed, purchased or otherwise "Description of OP acquired for consideration, nor Units -- Distributions" in the shall any other cash or other accompanying Prospectus. property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fractional unit and on any securities exchange. The transferability of the OP Units. if such assignment is less than all Preferred OP Units are subject to Until the expiration of one year of the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such three units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment and (3) the date on which a holder of Preferred consent may be withheld in its sole assignor and assignee have complied OP Units acquired Preferred OP and absolute discretion. After the with such other conditions as Units, subject to certain expiration of one year, such OP determined by the general partner exceptions, such holder of Unitholder has the right to to comply with any state securities Preferred OP Units may not transfer transfer all or any portion of its regulatory authority. The general all or any portion of its Pre- OP Units to any person, subject to partner will prohibit a transfer if ferred OP Units to any transferee the satisfaction of certain the transfer, when added to all without the consent of the general conditions specified in the AIMCO other assignment taking place in partner, which consent may be Operating Partnership Agreement, the preceding 12 months, in the withheld in its sole and absolute including the general partner's opinion of counsel to your discretion. After the expiration of right of first refusal. See partnership, would result in the one year, such holders of Preferred "Description of OP Units -- termination of your partnership for OP Units has the right to transfer Transfers and Withdrawals" in the federal tax purposes. No transfers all or any portion of its Preferred accompanying Prospectus. will be effective if counsel for OP Units to any person, subject to your partnership issues an opinion the satisfaction of certain After the first anniversary of that such transfer would be in conditions specified in the AIMCO becoming a holder of Common OP violation of any state securities Operating Partnership Agreement, Units, an OP Unitholder has the laws or affect the tax status of including the general partner's right, subject to the terms and your partnership or if such right of first refusal. conditions of the AIMCO Operating transfer would result in your Partnership Agreement, to require partnership being treated as an After a one-year holding period, a the AIMCO Operating Partnership to association taxable as a holder may redeem Preferred OP redeem all or a portion of the corporation. Such transferee may be Units and receive in exchange Common OP Units held by such party substituted as a limited partner therefor, at the AIMCO Operating in exchange for a cash amount based if: (1) the general partner Partnership's option, (i) subject on the value of shares of Class A consents in writing, which consent to the terms of any Senior Units, Common Stock. See "Description of may be granted or denied in the cash in an amount equal to the OP Units -- Redemption Rights" in sole discretion of the general Liquidation Preference of the the accompanying Prospectus. Upon partner, (2) the transferor elects Preferred OP Units tendered for receipt of a notice of redemption, to become a substitute limited redemption, (ii) a number of shares the AIMCO Operating Partnership partner by delivering to the of Class I Cumulative Preferred may, in its sole and absolute general partner a written notice, Stock of AIMCO that pay an discretion but subject to the executed and acknowledge by the aggregate amount of dividends yield restrictions on the ownership of assignor and assignee of such equivalent to the distributions on Class A Common Stock imposed under election, (3) the assignee executes the Preferred OP Units tendered for AIMCO's charter and the transfer and acknowledges such other redemption and are part of a class restrictions and other limitations instruments that the general or series of preferred stock that thereof, elect to cause AIMCO to partner may require including an is then listed on the New York acquire some or all of the tendered adoption of your partnership's Stock Exchange or another national Common OP Units in agreement of limited partnership, and (4) the assignee pays the partnership for its expenses incurred in the transaction.
S-68 530 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS securities exchange, or (iii) a exchange for Class A Common Stock, number of shares of Class A Common based on an exchange ratio of one Stock of AIMCO that is equal in share of Class A Common Stock for Value to the Liquidation Preference each Common OP Unit, subject to of the Preferred OP Units tendered adjustment as provided in the AIMCO for redemption. The Preferred OP Operating Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-69 531 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-70 532 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-71 533 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-72 534 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-73 535 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-74 536 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-75 537 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-76 538 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-77 539 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 10% of the Net Cash From Operations (as defined in your partnership's agreement of limited partnership) for its services as general partner of your partnership and receives reimbursement for expenses incurred in such capacity. The general partner of your partnership has received fees and reimbursements totaling $321,000 in 1996, $297,000 in 1997 and $157,000 for the first six months of 1998. The property manager received management fees of $400,000 in 1996, $336,000 in 1997 and $180,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-78 540 YOUR PARTNERSHIP GENERAL Angeles Income Properties, Ltd. 6 was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following properties: Lazy Hollow Apartments, a 178-unit apartment complex in Columbia, Maryland; Homestead Apartments, a 168-unit apartment complex in East Lansing, Michigan; Casa Grenada Apartments, a 108-unit apartment complex in Harlington, Texas; Mesa Dunes, a 451-pad mobile home park in Mesa, Arizona; Wakonda Shopping Center, a 147,000 square-foot commercial complex in Des Moines, Iowa; and Town & Center Shopping Center, a 104,000 square-foot commercial complex in Cedar Rapids, Iowa. Additionally, on July 16, 1998, the Partnership sold Whispering Pines Mobile Home Park, a 304-pad mobile home park in Lantana, Florida to an unaffiliated third party for $6,961,000 (net of sales commissions), resulting in approximately $1,812,000 of net proceeds to the partnership. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 47,311 units of limited partnership interest issued and outstanding, which were held of record by 4,140 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated July 16, 1998 and October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated July 11, 1987, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth or sixth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until S-79 541 December 31, 2037, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction.] GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. Notwithstanding any other provision to the contrary, the general partner, its affiliates will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws unless (1) there is a successful adjudication of the merits of each count involving such securities law violations and the court approves indemnification of litigation costs, (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction and the court approves indemnification of litigation costs or (3) a court of competent jurisdiction approves a settlement of such claims and the court approves indemnification of settlement and related costs. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court S-80 542 the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. Your partnership may not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is prohibited from being indemnified by your partnership's agreement of limited partnership. DISTRIBUTIONS Your partnership has not paid any distributions with respect to your partnership's units since 1991. The original cost per unit was $1,002.00. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 5.09% interest in your partnership, including 1,956 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $481,463 1995........................................................ 369,379 1996........................................................ 321,000 1997........................................................ 297,000 1998 (through June 30)...................................... 157,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $286,902 1995........................................................ 420,231 1996........................................................ 400,000 1997........................................................ 336,000 1998 (through June 30)...................................... 180,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-81 543 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-82 544 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Income Properties, Ltd. 6 appearing in Angeles Income Properties, Ltd. 6 Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-83 545 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 546 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 547 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 548 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 553 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 554 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES OPPORTUNITY PROPERTIES, LTD. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $506.00 per unit and an affiliate estimated the net liquidation value of your units to be $497.07 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 555 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Opportunity Properties, Ltd................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77
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PAGE ---- YOUR PARTNERSHIP............................... S-78 General...................................... S-78 Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 557 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Opportunity Properties, Ltd. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 558 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 559 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $19.96 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 560 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $80.00 per unit to $374.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $506.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $497.07 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 561 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must continue to hold at least three units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 562 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 563 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 564 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $506.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $497.07 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $80.00 per unit to $374.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 565 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 566 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 567 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 568 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 4.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in S-12 569 significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 570 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. S-14 571 Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . S-15 572 Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 573 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $80 to $347 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 574 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received reimbursements of $34,000 for the first six months of 1998. The property manager received management fees of $60,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Opportunity Properties, Ltd. was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 575 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Lake Meadows Apartments, a 96 unit complex in Garland, Texas; and Lakewood Apartments, a 256 unit complex in Houston, Texas. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, LP., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 12,245 units of limited partnership interest issued and outstanding, which were held of record by 1,704 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 576 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 577
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 578 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 579
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 580 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 581 SUMMARY FINANCIAL INFORMATION OF ANGELES OPPORTUNITY PROPERTIES, LTD. The summary financial information of Angeles Opportunity Properties, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Opportunity Properties, Ltd. for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES OPPORTUNITY PROPERTIES, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ---------------------------------- 1998 1997 1997 1996 1995 ------ ------ ------- ------ ------- (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues......................................... $1,226 $1,180 $ 2,399 $2,747 $ 3,231 Net Income (Loss)...................................... 165 160 314 535 1,067 Net income (Loss) per limited partnership unit......... 13.12 12.72 25.03 31.55 85.02 Distributions per limited partnership unit............. 19.96 95.61 155.37 23.90 278.87
JUNE 30, DECEMBER 31, ------------------- ---------------------------------- 1998 1997 1997 1996 1995 ------ ------ ------- ------ ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation........... $6,284 $6,436 $ 6,380 $6,445 $ 6,635 Total Assets........................................... 7,575 8,260 7,759 9,304 8,420 Notes Payable.......................................... 5,423 5,441 5,432 5,450 4,349 Partners' Capital...................................... 1,910 2,592 1,995 3,642 3,548
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING ANGELES OPPORTUNITY PARTNERSHIP PROPERTIES, LTD. ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $19.96 $155.37
S-25 582 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $80.00 per unit to $374.00 per unit from January 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $506.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $497.07 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 583 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 584 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $19.96 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 585 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 4.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 586 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, IPT, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which 850 units (representing approximately 6.8% of the number outstanding) have been tendered at a cash purchase price of $325.00 per unit as of October 16, 1998. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $200.00 per unit and purchased units in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 587 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 588 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 589 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 590 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least three units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 591 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 592 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 593 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 594 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 595 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 596 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 597 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 598 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1,252 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 6.3% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 599 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 600 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999.] On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 601 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 602 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 603 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 604 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Lake Meadows Apartments.......... $-- --% $-- Lakewood Apartments.............. $-- --% $--
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 605 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 606 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $19.96 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 607 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 608 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $80.00 to $374.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 435 units (representing less than 4.3% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to June 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES OPPORTUNITY PROPERTIES, LTD. REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ----------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................ $110.00 $318.00 (d) (d) Second Quarter............................... 80.00 175.00 (c) (c) First Quarter................................ 143.00 211.00 (c) (c) Fiscal Year Ended December 31, 1997: Fourth Quarter............................... 347.00 347.00 (c) (c) Third Quarter................................ 210.00 295.00 $295.00 $295.00 Second Quarter............................... 100.00 305.00 347.00 347.00 First Quarter................................ 100.00 299.00 243.00 305.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................... 173.00 297.00 244.00 299.00 Third Quarter................................ 76.00 266.00 173.00 235.00 Second Quarter............................... 150.00 150.00 -- -- First Quarter................................ 117.77 221.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 609 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) No Units were reported by The Partnership Spectrum as having been sold during the quarter. (d) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Lakewood Apartments was appraised in May, 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the S-53 610 Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $6,800,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $506.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $489.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. S-54 611 The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and S-55 612 discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not S-56 613 performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-57 614 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 615 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests, conduct any business that may be lawfully conducted by including debt interest, in residential commercial and a limited partnership organized pursuant to the industrial real properties either directly or Delaware Revised Uniform Limited Partnership Act (as indirectly through partnerships or joint ventures with amended from time to time, or any successor to such others and to acquire mortgage-backed securities as an statute) (the "Delaware Limited Partnership Act"), integral part of the foregoing acquisitions. Subject to provided that such business is to be conducted in a restrictions contained in your partnership's agreement manner that permits AIMCO to be qualified as a REIT, of limited partnership, your partnership may perform unless AIMCO ceases to qualify as a REIT. The AIMCO all acts necessary, advisable or convenient to the Operating Partnership is authorized to perform any and business of your partnership including borrowing money all acts for the furtherance of the purposes and and creating liens. 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.
S-59 616 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner, in its sole discretion, may make contributions as may be established by the general subsequent offerings of your partnership's securities, partner in its sole discretion. The net capital including offerings of additional units and limited contribution need not be equal for all OP Unitholders. partnership interests. The capital contribution need No action or consent by the OP Unitholders is required not be equal for all limited partners and no action or in connection with the admission of any additional OP consent is required in connection with the admission of Unitholder. See "Description of OP Units -- Management any additional limited partners. The general partner by the AIMCO GP" in the accompanying Prospectus. may not issue units in exchange for property. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner may appoint, employ or funds or other assets to its subsidiaries or other contract any person, including affiliates for the persons in which it has an equity investment, and such account of your partnership for the transaction of the persons may borrow funds from the AIMCO Operating business of your partnership. However, the terms of Partnership, on terms and conditions established in the employment will allow your partnership, by majority sole and absolute discretion of the general partner. To vote of the limited partners to modify or terminate the extent consistent with the business purpose of the such employment, with or without cause, and without AIMCO Operating Partnership and the permitted penalty to your partnership, upon no greater than sixty activities of the general partner, the AIMCO Operating days notice to the employed party. The general partner Partnership may transfer assets to joint ventures, may not purchase or lease any real property or acquire limited liability companies, partnerships, any loan or lease from your partnership or sell or corporations, business trusts or other business lease any real property, loan or lease to your entities in which it is or thereby becomes a partnership either directly or through an affiliate. participant upon such terms and subject to such However, the general partner or an affiliate may conditions consistent with the AIMCO Operating Part- purchase property in its own name and temporarily hold nership Agreement and applicable law as the general title thereto for the purpose of facilitating its partner, in its sole and absolute discretion, believes acquisition or financing by your partnership if (1) the to be advisable. Except as expressly permitted by the property is purchased by your partnership for a price AIMCO Operating Partnership Agreement, neither the no greater than the cost of the property to the general general partner nor any of its affiliates may sell, partner or its affiliate, (2) no difference exists in transfer or convey any property to the AIMCO Operating the interest rates of the loans secured by the property Partnership, directly or indirectly, except pursuant to at the time acquired by the general partner or its transactions that are determined by the general partner affiliates and at the time acquired by your partnership in good faith to be fair and reasonable. and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may also lease property to a partnership sponsored by the general partner or its affiliates so long as the terms of the lease are comparable to, or no less favorable to your partnership than those offered to and accepted by unrelated persons for comparable space and contained in a written contract which precisely describes the subject matter thereof and all compensation to be paid, which contract, if not previously disclosed, must be fully and properly disclosed to all partners. If the general partner or its affiliates sublease such space, all rent received by them in excess of the rent paid to your partnership will be paid to your partnership. Subject to certain conditions contained in your partnership's agreement of limited partnership, your partnership may invest the assets of your partnership in entities affiliated with the general partner of your partnership. Your partnership may not make loans to the general partner or its affiliates but the general partner and its affiliates
S-60 617 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP may lend money to your partnership to fund its acquisitions if (1) such loan is made at interest rates and charges not in excess of the rates and charges then currently being paid by the lender for the borrowed funds, but in no event may the interest rate and charges exceed the interest rate and charges which would be charged by unrelated lending institutions on comparable loans for the same purpose, in the same locality of the property (if such loan is made in connection with a particular property), (2) your partnership agrees to repay promptly such loan from the offering of units, but in no event later than one year from the date of purchase of the property, (3) such interim financing is not in an amount that exceed 80% of the purchase price of the property and (4) the general partner or its affiliates agree to purchase the property, as promptly as practical from your partnership at a price equal to the cost of the property to your partnership in the event that your partnership is unable to make sufficient payments to repay the loan for any reason. The general partner or any affiliate who lends money to your partnership may not require prepayment changes or penalties if the loan is secured by a mortgage or encumbrance on your partnership's property or permit a permanent loan to be made to your partnership. Unless certain conditions are met, your partnership may not finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates is the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of real Partnership has credit agreements that restrict, among property, subject all such properties acquired by your other things, its ability to incur indebtedness. See partnership to one or more mortgages or deeds of trust "Risk Factors -- Risks of Significant Indebtedness" in which would exceed an aggregate amount equal to 80% of the accompanying Prospectus. the purchase price of all properties. In addition, subject to certain exceptions, the general partner may not acquire a property subject to or subject a property to financing which contains a provision for a balloon payment due and payable prior to the earlier of (1) ten years from the date your partnership acquires the property or (2) two years beyond the estimated holding period for the property, but in no event prior to seven years from the date of acquisition of the property. All financing incurred by your partnership will generally provide for periodic payments in an amount which would be sufficient to self-liquidate the loans over periods of not more than thirty years. Your partnership may not issue debt securities to the public. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
S-61 618 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, and California law the general management power over the business and affairs of the partner has the right, power and authority, on behalf AIMCO Operating Partnership. The OP Unitholders have of your partnership, and in its name, to exercise all the right to vote on certain matters described under of the rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without approval by the limited partners. Units -- Voting Rights" below. The general partner may Limited partners have no right to participate in the not be removed by the OP Unitholders with or without management or conduct of your partnership's business or cause. affairs nor any power or authority to act for or on behalf of your partnership in any respect whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. Notwithstanding any other provision to the settlements and other amounts incurred in connection contrary, the general partner, its affiliates will not with any actions relating to the operations of the be entitled to indemnity for any loss, damage or cost AIMCO Operating Partnership, as set forth in the AIMCO resulting from violations of federal or state Operating Partnership Agreement. The Delaware Limited securities laws unless (1) there is a successful Partnership Act provides that adjudication of the merits of each
S-62 619 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP count involving such securities law violations and the subject to the standards and restrictions, if any, set court approves indemnification of such litigation forth in its partnership agreement, a limited expenses, (2) such claims have been dismissed with partnership may, and shall have the power to, indemnify prejudice on the merits by a court of competent and hold harmless any partner or other person from and jurisdiction and the court approves indemnification of against any and all claims and demands whatsoever. It such litigation expenses or (3) a court of competent is the position of the Securities and Exchange Commis- jurisdiction approves a settlement of such claims and sion that indemnification of directors and officers for finds that indemnification of the settlement and liabilities arising under the Securities Act is against related costs should be made. In any claim for public policy and is unenforceable pursuant to Section indemnification for federal or state securities law 14 of the Securities Act of 1933. violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units once a substitute partner may not be removed as general partner of the general partner is admitted. A substitute general part- AIMCO Operating Partnership by the OP Unitholders with ner may be admitted with the consent of the general or without cause. Under the AIMCO Operating Partnership partner if such party consents to become a general Agreement, the general partner may, in its sole partner, the limited partners holding more than 50% of discretion, prevent a transferee of an OP Unit from the outstanding units consent to the admission of the becoming a substituted limited partner pursuant to the substitute general partner and the substitute general AIMCO Operating Partnership Agreement. The general partner executes and acknowledges such instruments as partner may exercise this right of approval to deter, the general partner deems necessary or advisable, delay or hamper attempts by persons to acquire a including the adoption of your partnership's agreement controlling interest in the AIMCO Operating Partner- of limited partnership. The general partner may admit ship. Additionally, the AIMCO Operating Partnership additional general partners without the consent of the Agreement contains restrictions on the ability of OP limited partners. No limited partner may substitute a Unitholders to transfer their OP Units. See transferee of his units in such limited partner's place "Description of OP Units -- Transfers and Withdrawals" without the consent of the general partner which may be in the accompanying Prospectus. withheld at the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership, (3) deletes or adds any provision required the OP Unitholders. The general partner will seek the by any applicable law, (4) reflects any reduction of written consent of the OP Unitholders on the proposed the partners' capital accounts and (5) reflects a amendment or will call a meeting to vote thereon. See change in the name or the location of the principal "Description of OP Units -- Amendment of the AIMCO place of business of your partnership. Your Operating Partnership Agreement" in the accompanying partnership's agreement of limited partnership may not Prospectus. be amended to change your partnership to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. Any amendment which diminishes the rights of the general partner may not be made without the consent of the general partner or all of the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
S-63 620 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Compensation and Fees The general partner of your partnership receives no fee The general partner does not receive compensation for for its services as general partner, but may receive its services as general partner of the AIMCO Operating reimbursement for expenses incurred in such capacity. 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 Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is liable not for the negligence, no OP Unitholder has personal liability for debts, liabilities, or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership. The general partner such terms as the general partner, in its sole and may delegate any or all of its powers, rights and absolute discretion, believes are advisable. The AIMCO obligations under your partnership's agreement of Operating Partnership Agreement expressly limits the limited partners and in furtherance of any such liability of the general partner by providing that the delegation may appoint, employ or contract with any general partner, and its officers and directors will person for the account of your partnership for the not be liable or accountable in damages to the AIMCO transaction of the business of your partnership, which Operating Partnership, the limited partners or person may, under the supervision of the general assignees for errors in judgment or mistakes of fact or partner, perform such acts or services for your law or of any act or omission if the general partner or partnership as the general partnership may approve. The such director or officer acted in good faith. See general partner may not commingle funds of your "Description of OP Units -- Fiduciary Responsibilities" partnership with any other person. The general partner in the accompanying Prospectus. and its affiliates may acquire real properties for their own account, or engage in the acquisition, development, operation or management of real estate on behalf of other entities, including business
S-64 621 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ventures similar to, related to or in direct or indirect competition with any business of your partnership. However, if your partnership has funds available for investment, the general partner and its affiliates will grant a right of first refusal to your partnership for those real property investment opportunities which meet your partnership's investment objectives and policies before they acquire these properties for their own account. Neither your partner- ship nor any other partner will have any right in or to such other business ventures or the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS REFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quar-
S-65 622 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS terly cash distribution at a rate Operating Partnership Agreement) to of $ per Preferred OP Unit, the partners of the AIMCO Operating subject to adjustments from time to Partnership. To the extent the time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner; ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership and holders of at least 50% of the terminate an employment contract outstanding Preferred OP Units will Under the AIMCO Operating Partner- with an affiliate of the general be necessary for effecting any ship Agreement, the general partner partner. amendment of any of the provisions has the power to effect the of the Partnership Unit Desig- acquisition, sale, transfer, A general partner may cause the nation of the Preferred OP Units exchange or other disposition of dissolution of your partnership by that materially and adversely any assets of the AIMCO Operating retiring. In such event, your affects the rights or preferences Partnership (including, but not partnership may be continued by the of the holders of the Preferred OP limited to, the exercise or grant remaining general partner if, in Units. The creation or issuance of of any conversion, option, the opinion of counsel to your any class or series of partnership privilege or subscription right or partnership, such election would units, including, without any other right available in not jeopardize your partnership's limitation, any partnership units connection with any assets at any status as a partnership for tax that may have rights senior or time held by the AIMCO Operating purposes. If no general partner superior to the Preferred OP Units, Partnership) or the merger, remains, your partnership may shall not be deemed to materially consolidation, reorganization or continue if, within ninety days of adversely affect the rights or other combination of the AIMCO the retirement, the limited preferences of the holders of Operating Partnership with or into partners holding more than 50% of Preferred OP Units. With respect to another entity, all without the the units elect a substitute the exercise of the above de- consent of the OP Unitholders. general partner who is willing to scribed voting rights, each continue your partnership. Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution
S-66 623 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations are to be made quarterly provided, however, that at any time portion as the general partner may to the partners in proportion to and from time to time on or after in its sole and absolute discretion the interests in your partnership. the fifth anniversary of the issue determine, of Available Cash (as The distributions payable to the date of the Preferred OP Units, the defined in the AIMCO Operating partners are not fixed in amount AIMCO Operating Partnership may Partnership Agreement) generated by and depend upon the operating adjust the annual distribution rate the AIMCO Operating Partnership results and net sales or refi- on the Preferred OP Units to the during such quarter to the general nancing proceeds available from the lower of (i) % plus the annual partner, the special limited disposition of your partnership's interest rate then applicable to partner and the holders of Common assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-67 624 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fraction unit and if on any securities exchange. The transferability of the OP Units. such assignment is less than all of Preferred OP Units are subject to Until the expiration of one year the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such three units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignment taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor without the consent of the general conditions specified in the AIMCO receives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as deter- one year, such holders of Preferred "Description of OP Units -- mined by the general partner to OP Units has the right to transfer Transfers and Withdrawals" in the comply with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substituted as a the satisfaction of certain After the first anniversary of limited partner if: (1) the general conditions specified in the AIMCO becoming a holder of Common OP partner consents in writing, which Operating Partnership Agreement, Units, an OP Unitholder has the consent may be granted or denied in including the general partner's right, subject to the terms and the sole discretion of the general right of first refusal. conditions of the AIMCO Operating partner, (2) the transferor elects Partnership Agreement, to require to become a substitute limited After a one-year holding period, a the AIMCO Operating Partnership to partner by delivering to the holder may redeem Preferred OP redeem all or a portion of the general partner a written notice, Units and receive in exchange Common OP Units held by such party executed and acknowledge by the therefor, at the AIMCO Operating in exchange for a cash amount based assignor and assignee of such Partnership's option, (i) subject on the value of shares of Class A election, (3) the assignee executes to the terms of any Senior Units, Common Stock. See "Description of and acknowledges such other cash in an amount equal to the OP Units -- Redemption Rights" in instruments that the general Liquidation Preference of the the accompanying Prospectus. Upon partner may require including an Preferred OP Units tendered for receipt of a notice of redemption, adoption of your partnership's redemption, (ii) a number of shares the AIMCO Operating Partnership agreement of limited partnership, of Class I Cumulative Preferred may, in its sole and absolute and (4) the assignee pays the Stock of AIMCO that pay an discretion but subject to the partnership for its expenses aggregate amount of dividends yield restrictions on the ownership of incurred in the transaction. equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 625 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 626 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 627 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 628 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 629 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 630 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 631 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 632 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 633 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received reimbursements of $144,000 in 1996, $94,000 in 1997 and $34,000 for the first six months of 1998. The property manager received management fees of $107,000 in 1996, $117,000 in 1997 and $60,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 634 YOUR PARTNERSHIP GENERAL Angeles Opportunity Properties, Ltd. was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Lake Meadows Apartments, a 96 unit complex in Garland, Texas; and Lakewood Apartments, a 256 unit complex in Houston, Texas. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, LP., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 12,245 units of limited partnership interest issued and outstanding, which were held of record by 1,704 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated June 26, 1987, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that opportunities for refinancing, sale or other disposition will be available for most of is properties within three to five years of acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction.] GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each S-78 635 asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceedings and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. Notwithstanding any other provision to the contrary, the general partner, its affiliates will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws unless (1) there is a successful adjudication of the merits of each count involving such securities law violations and the court approves indemnification of such litigation expenses, (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction and the court approves indemnification of such litigation expenses or (3) a court of competent jurisdiction approves a settlement of such claims and finds that indemnification of the settlement and related costs should be made. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. Your partnership may not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is prohibited from being indemnified by your partnership's agreement of limited partnership. S-79 636 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $278.87 January 1, 1996 - December 31, 1996......................... 23.90 January 1, 1997 - December 31, 1997......................... 155.37 January 1, 1998 - June 30, 1998............................. 19.96
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 4.26% interest in your partnership, including 405 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. In addition to the tender offers described under "Background and Reasons for the Offer -- Previous Tender Offers." Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $167,203 1995........................................................ 144,558 1996........................................................ 144,000 1997........................................................ 94,000 1998 (through June 30)...................................... 34,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $112,862 1995........................................................ 107,746 1996........................................................ 107,000 1997........................................................ 117,000 1998 (through June 30)...................................... 60,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 637 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT Merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of S-81 638 AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Opportunity Properties, Ltd. appearing in Angeles Opportunity Properties, Ltd. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 639 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 640 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 641 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 642 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 645
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 646
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 647 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 648 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS VII IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, your general partner estimated the net asset value of your units to be $272.00 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a single apartment property to holding an interest in our large portfolio of properties. In the future, the property owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 649 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners VII............................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-66 General...................................... S-66 Ranking...................................... S-66 Distributions................................ S-66 Allocation................................... S-67 Liquidation Preference....................... S-67 Redemption................................... S-68 Voting Rights................................ S-68 Restrictions on Transfer..................... S-68 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-69 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-71 CONFLICTS OF INTEREST.......................... S-74 Conflicts of Interest with Respect to the Offer...................................... S-74 Conflicts of Interest that Currently Exist for Your Partnership....................... S-74 Competition Among Properties................. S-74 Features Discouraging Potential Takeovers.... S-74 Future Exchange Offers....................... S-74 YOUR PARTNERSHIP............................... S-75 General...................................... S-75
i 650
PAGE ---- Additional Information Concerning Your Partnership................................ S-75 Originally Anticipated Term of the Partnership................................ S-75 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-75 Property Management.......................... S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions................................ S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 651 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners VII. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 652 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 653 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $15.11 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a single property to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 654 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $272.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 655 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must hold at least five units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 656 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 657 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 658 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $272.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 659 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a single property to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 660 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 661 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 662 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 1.14% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 663 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 664 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 665 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 666 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 667 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $20.00 to $100.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 668 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 7 1/2% of the Net Cash from Operations for each year payable quarterly for its services as general partner and reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $46,000 for the six months ended June 30, 1998. The property manager received management fees of $31,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Partners VII was organized on January 1, 1977, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of one residential apartment complex: Cedarwood Apartments, a 226-unit complex in Gretna, Louisiana. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, which is a majority-owned subsidiary of AIMCO, serves as manager of the property owned by your partnership. As of September 15, 1998, there were 8,669 units of limited partnership interest issued and outstanding, which were held of record by 873 limited partners. Your S-18 669 partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 670 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 671
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 672 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 673
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 674 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 675 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS VII The summary financial information of Angeles Partners VII for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners VII for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS VII
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- --------------------------------------- 1998 1997 1997 1996 1995 IN THOUSANDS, EXCEPT UNIT DATA ------------ ------------ ----------- ----------- ----------- OPERATING DATA: Total Revenues..................................... $ 636 $ 604 $ 1,230 $ 1,155 $ 1,058 Net Income (Loss).................................. 48 44 94 2 (86) Net Income (Loss) per limited partnership unit..... 5.54 5.08 10.73 0.23 (9.81) Distributions per limited partnership unit......... 15.11 -- -- -- 8.86
JUNE 30, DECEMBER 31, --------------------------- --------------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ ----------- ----------- ----------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation....... $ 1,698 $ 1,902 $ 1,809 $ 2,003 $ 2,160 Total Assets....................................... 2,171 2,310 2,323 2,344 2,438 Notes Payable...................................... 2,278 2,396 2,339 2,452 2,555 Partners' Capital/(Deficit)........................ (223) (189) (139) (233) (235)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS VII ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $15.11 $0.00
S-25 676 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $272.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $272.00 per unit. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's property by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 677 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a single property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 678 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $15.11 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 679 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the property owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.14% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 680 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 681 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 682 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 683 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least five units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 684 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 685 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 686 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 687 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 688 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 689 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 690 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 691 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 508 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 5.86% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 692 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 693 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 694 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 695 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 696 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 697 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated the property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------------------- ---------------- -------------- -------------- Cedarwood Apartments $ % $
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 698 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 699 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $15.11 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 700 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 701 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $20.00 to $100.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 775 units (representing approximately 8.94% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES PARTNERS VII REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 44.00 $100.00 Second Quarter............................................ 20.00 45.00 First Quarter............................................. 100.00 60.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 100.00 100.00 Third Quarter............................................. 100.00 100.00 Second Quarter............................................ 65.00 100.00 First Quarter............................................. 78.50 78.50 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 80.00 80.00 Third Quarter............................................. 85.90 85.90 Second Quarter............................................ 40.00 58.00 First Quarter............................................. 50.00 50.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-51 702 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit. That estimate of your partnership's net asset value per unit as of December 31, 1997 was $272. This estimated net asset value is based on a hypothetical sale of the partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's property were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-52 703 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's property provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for S-53 704 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during October and November 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-54 705 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-55 706 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 707 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash Flow from Operations (as defined of the AIMCO Operating Partnership's agreement of in your partnership's agreement of limited partner- limited partnership (the "AIMCO Operating Partnership ship). The termination date of your partnership is Agreement") or as provided by law. See "Description of December 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee or The purpose of the AIMCO Operating Partnership is to other equity interests in, or long-term leasehold conduct any business that may be lawfully conducted by interests in, improved residential, commercial and a limited partnership organized pursuant to the industrial real properties and to operate such Delaware Revised Uniform Limited Partnership Act (as properties with the primary objectives of distributing amended from time to time, or any successor to such among the partners tax-sheltered cash flow and statute) (the "Delaware Limited Partnership Act"), providing capital growth. Subject to restrictions provided that such business is to be conducted in a contained in your partnership's agreement of limited manner that permits AIMCO to be qualified as a REIT, partnership, your partnership may perform all acts unless AIMCO ceases to qualify as a REIT. The AIMCO necessary, advisable or convenient to the business of Operating Partnership is authorized to perform any and your partnership including borrowing money and creating all acts for the furtherance of the purposes and liens. 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.
S-57 708 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 10,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property from your participant upon such terms and subject to such partnership or sell or lease any real property to your conditions consistent with the AIMCO Operating Part- partnership either directly or through an affiliate. nership Agreement and applicable law as the general However, the general partner or an affiliate may partner, in its sole and absolute discretion, believes purchase property in its own name and temporarily hold to be advisable. Except as expressly permitted by the title thereto for the purpose of facilitating its AIMCO Operating Partnership Agreement, neither the acquisition or financing by your partnership if (1) the general partner nor any of its affiliates may sell, property is purchased by your partnership for a price transfer or convey any property to the AIMCO Operating no greater than the cost of the property to the general Partnership, directly or indirectly, except pursuant to partner or its affiliate, (2) no difference exists in transactions that are determined by the general partner the interest rates of the loans secured by the property in good faith to be fair and reasonable. at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may not make loans to the general partner or its affiliates but the general partner may lend money to your partner- ship if such loan is made at interest rates and charges not in excess of the rates and charges which would be charged by unrelated banks in a competitive position or subject any assets of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by the general partner or an affiliate except in the case of "wraparound" notes. Unless certain conditions are met, the general partner may not finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the
S-58 709 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of assets, Partnership has credit agreements that restrict, among subject any asset of your partnership to one or more other things, its ability to incur indebtedness. See mortgages, deeds of trust or other security interest, "Risk Factors -- Risks of Significant Indebtedness" in so that the aggregate amount of indebtedness secured by the accompanying Prospectus. mortgages, deeds or trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. The general partner may not mortgage or subject to the encumbrance of a mortgage, deed of trust or other security interest substantially all of the assets of your partnership at one time or from time to time without the approval of the limited partners holding a majority of the then outstanding units. Your partnership may not issue debt securities to the public. The general partner may not cause your partnership to incur obligations secured by its property providing for lump sum principal or "balloon" payments less than fifteen years from the date of incurrence of the obligation. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters described under rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without limited partners under California Units -- Voting Rights" below. The general partner may law. Limited partners have no right to participate in not be removed by the OP Unitholders with or without the management or conduct of your partnership's cause. business or affairs nor any power or authority to act for or on behalf of your partnership in any respect In addition to the powers granted a general partner of whatsoever. 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 Oper-
S-59 710 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ating 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. No indemnification will be provided for settlements and other amounts incurred in connection liabilities arising under the Securities Act of 1933. with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership 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 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner and the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership. No limited partner may controlling interest in the AIMCO Operating Partner- substitute a transferee of his units in such limited ship. Additionally, the AIMCO Operating Partnership partner's place without the consent of the general Agreement contains restrictions on the ability of OP partner which may be withheld at the sole discretion of Unitholders to transfer their OP Units. See the general partner. "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited the general
S-60 711 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners if such amendment: (1) adds to the partner may, without the consent of the OP Unitholders, representation, duties, or obligations of the general amend the AIMCO Operating Partnership Agreement, partner or its affiliates or surrenders any right or amendments to the AIMCO Operating Partnership Agreement power granted to the general partner or its affiliates require the consent of the holders of a majority of the for the benefit of the limited partner, (2) cures any outstanding Common OP Units, excluding AIMCO and ambiguity, corrects or supplements any provision which certain other limited exclusions (a "Majority in may be inconsistent with any other provision or makes Interest"). Amendments to the AIMCO Operating any other provision with respect to matters or Partnership Agreement may be proposed by the general questions arising under your partnership's agreement of partner or by holders of a Majority in Interest. limited partnership consistent with the provisions of Following such proposal, the general partner will your partnership's agreement of limited partnership and submit any proposed amendment to the OP Unitholders. (3) deletes or adds any provision required by any The general partner will seek the written consent of applicable law. Your partnership's agreement of limited the OP Unitholders on the proposed amendment or will partnership may not be amended to change your call a meeting to vote thereon. See "Description of OP partnership to a general partnership, extend the term Units -- Amendment of the AIMCO Operating Partnership of your partnership, change the liability of the Agreement" in the accompanying Prospectus. general partner or the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive an annual management fee equal to 7 1/2% of the its services as general partner of the AIMCO Operating Net Cash from Operations for each year payable Partnership. However, the general partner is entitled quarterly for its services as general partner and also to payments, allocations and distributions in its receives reimbursement for expenses incurred in such capacity as general partner of the AIMCO Operating capacity. Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the
S-61 712 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP business of your partnership as may be necessary to general partner from taking any action or engaging in properly conduct the affairs of your partnership. The any transaction as to which it has a conflict of general partner has a fiduciary responsibility for the interest. The AIMCO Operating Partnership Agreement safekeeping and use of all of your partnership's funds expressly authorizes the general partner to enter into, and assets, whether or not they are in its immediate on behalf of the AIMCO Operating Partnership, a right possession or control. The general partner may not of first opportunity arrangement and other conflict employ or permit others to employ such funds or assets avoidance agreements with various affiliates of the in any manner except for the benefit of your AIMCO Operating Partnership and the general partner, on partnership nor commingle funds of your partnership such terms as the general partner, in its sole and with any other person. The general partner and its absolute discretion, believes are advisable. The AIMCO affiliates may acquire real properties for their own Operating Partnership Agreement expressly limits the account, or engage in the acquisition, development, liability of the general partner by providing that the operation or management of real estate on behalf of general partner, and its officers and directors will other entities, including business ventures similar to, not be liable or accountable in damages to the AIMCO related to or in direct or indirect competition with Operating Partnership, the limited partners or any business of your partnership. Neither your assignees for errors in judgment or mistakes of fact or partnership nor any other partner will have any right law or of any act or omission if the general partner or in or to such other business ventures or the income or such director or officer acted in good faith. See profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-62 713 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner; ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership; and holders of at least 50% of the approve or disapprove the outstanding Preferred OP Units will Under the AIMCO Operating Partner- mortgaging of all of the assets of be necessary for effecting any ship Agreement, the general partner your partnership at one time or amendment of any of the provisions has the power to effect the from time to time. of the Partnership Unit Desig- acquisition, sale, transfer, nation of the Preferred OP Units exchange or other disposition of The general partner may cause the that materially and adversely any assets of the AIMCO Operating dissolution of your partnership by affects the rights or preferences Partnership (including, but not retiring. In such event, your of the holders of the Preferred OP limited to, the exercise or grant partnership may be continued if, Units. The creation or issuance of of any conversion, option, within ninety days of the retire- any class or series of partnership privilege or subscription right or ment, the limited partners holding units, including, without any other right available in more than 50% of the units elect a limitation, any partnership units connection with any assets at any substitute general partner who is that may have rights senior or time held by the AIMCO Operating willing to continue your superior to the Preferred OP Units, Partnership) or the merger, partnership. shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in
S-63 714 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior
S-64 715 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fractional unit and on any securities exchange. The transferability of the OP Units. if such assignment is less than all Preferred OP Units are subject to Until the expiration of one year of the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such five units, (2) the assignee and OP Unitholder may not transfer all the assignor execute, acknowledge Pursuant to the AIMCO Operating or any portion of its OP Units to and deliver to the general partner Partnership Agreement, until the any transferee without the consent a written assignment, (3) the expiration of one year from the of the general partner, which transfer, when added to all other date on which a holder of Preferred consent may be withheld in its sole assignment taking place in the OP Units acquired Preferred OP and absolute discretion. After the preceding 12 months, in the opinion Units, subject to certain expiration of one year, such OP of counsel to your partnership, exceptions, such holder of Unitholder has the right to does not result in termination of Preferred OP Units may not transfer transfer all or any portion of its your partnership for Federal tax all or any portion of its Pre- OP Units to any person, subject to purposes and the transferor ferred OP Units to any transferee the satisfaction of certain receives a ruling from the IRS to without the consent of the general conditions specified in the AIMCO such effect and (4) the assignor partner, which consent may be Operating Partnership Agreement, and assignee have complied with withheld in its sole and absolute including the general partner's such other conditions as determined discretion. After the expiration of right of first refusal. See by the general partner to comply one year, such holders of Preferred "Description of OP Units -- with any state securities OP Units has the right to transfer Transfers and Withdrawals" in the regulatory authority. Such all or any portion of its Preferred accompanying Prospectus. transferee may be substituted as a OP Units to any person, subject to limited partner if: (1) the general the satisfaction of certain After the first anniversary of partner consents in writing, which conditions specified in the AIMCO becoming a holder of Common OP consent may be granted or denied in Operating Partnership Agreement, Units, an OP Unitholder has the the sole discretion of the general including the general partner's right, subject to the terms and partner, (2) the transferor elects right of first refusal. conditions of the AIMCO Operating to become a substitute limited Partnership Agreement, to require partner by delivering to the After a one-year holding period, a the AIMCO Operating Partnership to general partner a written notice, holder may redeem Preferred OP redeem all or a portion of the executed and acknowledge by the Units and receive in exchange Common OP Units held by such party assignor and assignee of such therefor, at the AIMCO Operating in exchange for a cash amount based election, (3) the assignee executes Partnership's option, (i) subject on the value of shares of Class A and acknowledges such other to the terms of any Senior Units, Common Stock. See "Description of instruments that the general cash in an amount equal to the OP Units -- Redemption Rights" in partner may require including an Liquidation Preference of the the accompanying Prospectus. Upon adoption of your partnership's Preferred OP Units tendered for receipt of a notice of redemption, agreement of limited partnership, redemption, (ii) a number of shares the AIMCO Operating Partnership and (4) the assignee pays the of Class I Cumulative Preferred may, in its sole and absolute partnership for its expenses Stock of AIMCO that pay an discretion but subject to the incurred in the transaction. aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-65 716 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-66 717 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-67 718 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-68 719 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-69 720 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-70 721 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-71 722 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-72 723 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-73 724 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 7 1/2% of the Net Cash from Operations for each year payable quarterly for its services as general partner and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $67,000 in 1996, $50,000 in 1997 and $46,000 for the first six months of 1998. The property manager received management fees of $57,000 in 1996, $60,000 in 1997 and $31,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-74 725 YOUR PARTNERSHIP GENERAL Angeles Partners VII was organized on January 1, 1977, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of one residential apartment complex: Cedarwood Apartments, a 226-unit complex in Gretna, Louisiana. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, which is a majority-owned subsidiary of AIMCO, serves as manager of the property owned by your partnership. As of September 18, 1998 there were 8,669 units of limited partnership interest issued and outstanding, which were held of record by 873 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP Pursuant to a prospectus date September 19, 1997, your general partner (which was not then an affiliate of ours) indicated that favorable opportunities for refinancing, sale or other disposition will be available for most properties within less than four years of acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each S-75 726 asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. No indemnification will be provided for liabilities arising under the Securities Act of 1933. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,001.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 8.86 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 15.11
S-76 727 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 1.14% interest in your partnership, including 12 units held by us and the interest held by Angeles Realty Corporation, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $37,967 1995........................................................ 60,714 1996........................................................ 67,000 1997........................................................ 50,000 1998 (through June 30)...................................... 46,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $48,641 1995........................................................ 52,360 1996........................................................ 57,000 1997........................................................ 60,000 1998 (through June 30)...................................... 31,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 728 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT Merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The financial statements of Angeles Partners VII appearing in Angeles Partners VII Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 729 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 730 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 731 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 732 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 733
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 734
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 735
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 736
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 737 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 738 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS VIII IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, your general partner estimated the net asset value of your units to be $0.00 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 739 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners VIII.............................. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75 YOUR PARTNERSHIP............................... S-76 General...................................... S-76
i 740
PAGE ---- Additional Information Concerning Your Partnership................................ S-76 Originally Anticipated Term of the Partnership................................ S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-76 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-77 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-78
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 741 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners VIII. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 742 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 743 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid no distributions for the six months ended June 30, 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 744 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $8.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $0.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 745 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 746 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 747 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 748 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $0.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $8.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 749 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 750 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 751 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 752 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 1.204% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 753 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership has incurred recurring operating losses, is in default on certain indebtedness and does not generate sufficient cash flows to meet current operating requirements. These conditions raise substantial doubt about your partnership's ability to continue as a going concern. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). S-13 754 - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 755 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 756 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 757 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $1.00 to $8.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 758 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 7 1/2% of the Net Cash from Operations for each year payable quarterly for its services as general partner and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $54,000 for the first six months of 1998. The property manager received management fees of $98,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Partners VIII was organized on August 10, 1978, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Bercado Shores, a 234-unit complex in Mishawka, Indiana; and Brittany Point, a 431-unit complex in Huntsville, Alabama. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your S-18 759 partnership. As of September 15, 1998, there were 11,759 units of limited partnership interest issued and outstanding, which were held of record by 1,318 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 760 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 761
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 762 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 763
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 764 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 765 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS VIII The summary financial information of Angeles Partners VIII for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners VIII for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS VIII
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 1,951 $ 1,894 $ 3,883 $ 3,643 $ 4,542 Net Income (Loss)........................................... (369) (400) (631) (1,023) 15 Net Income (Loss) per limited partnership unit.............. (30.81) (33.10) (52.72) (84.52) 1.23 Distributions per limited partnership unit.................. -- -- -- -- --
JUNE 30, DECEMBER 31, -------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $ 4,642 $ 4,969 $ 4,831 $ 5,192 $ 4,902 Total Assets................................................ 5,426 5,674 5,476 5,779 5,651 Notes Payable............................................... 16,811 16,713 16,578 16,808 16,425 Partners' Capital (Deficit)................................. (14,571) (13,971) (14,202) (13,571) (12,548)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS VIII ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 766 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $8.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $0.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 767 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 768 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00 per unit. No distributions were made by your partnership from January 1, 1994 through the present. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 769 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.204% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 770 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 771 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 772 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 773 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 774 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 775 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 776 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 777 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 778 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 779 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 780 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 781 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 55 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 0.47% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 782 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 783 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 784 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 785 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 786 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 787 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Bercado Shores $ % $ Brittany Point
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 788 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 789 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." No distributions were made by your partnership from January 1, 1994 through the present. In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating S-49 790 Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 791 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $1.00 to $8.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 163 units (representing less than 1.39% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES PARTNERS VIII REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 1.00 $ 1.00 Second Quarter............................................ -- -- First Quarter............................................. -- -- Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ -- -- Third Quarter............................................. -- -- Second Quarter............................................ -- -- First Quarter............................................. 8.00 8.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ -- -- Third Quarter............................................. 5.05 5.05 Second Quarter............................................ 1.00 30.00 First Quarter............................................. 10.00 10.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-51 792 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit. That estimate of your partnership's net asset value per unit as of December 31, 1997 was $0.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-52 793 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-53 794 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-54 795 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-55 796 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 797 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 21, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee or The purpose of the AIMCO Operating Partnership is to other equity interests in, or long-term leasehold conduct any business that may be lawfully conducted by interests in, improved residential, commercial and a limited partnership organized pursuant to the industrial real properties and to operate such Delaware Revised Uniform Limited Partnership Act (as properties with the primary objectives of distributing amended from time to time, or any successor to such among the partners tax-sheltered cash flow and statute) (the "Delaware Limited Partnership Act"), providing capital growth. Subject to restrictions provided that such business is to be conducted in a contained in your partnership's agreement of limited manner that permits AIMCO to be qualified as a REIT, partnership, your partnership may perform all acts unless AIMCO ceases to qualify as a REIT. The AIMCO necessary, advisable or convenient to the business of Operating Partnership is authorized to perform any and your partnership including borrowing money and creating all acts for the furtherance of the purposes and liens. 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.
S-57 798 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 12,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property or acquire any participant upon such terms and subject to such loan or lease from your partnership or sell or lease conditions consistent with the AIMCO Operating Part- any real property, loan or lease to your partnership nership Agreement and applicable law as the general either directly or through an affiliate. However, the partner, in its sole and absolute discretion, believes general partner or an affiliate may purchase property to be advisable. Except as expressly permitted by the in its own name and temporarily hold title thereto for AIMCO Operating Partnership Agreement, neither the the purpose of facilitating its acquisition or general partner nor any of its affiliates may sell, financing by your partnership if (1) the property is transfer or convey any property to the AIMCO Operating purchased by your partnership for a price no greater Partnership, directly or indirectly, except pursuant to than the cost of the property to the general partner or transactions that are determined by the general partner its affiliate, (2) no difference exists in the interest in good faith to be fair and reasonable. rates of the loans secured by the property at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may not make loans to the general partner or its affiliates but the general partner may lend money to your partnership if such loan is made at interest rates and charges not in excess of the rates and charges which would be charged by unrelated banks in a competitive position or subject any assets of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by the general partner or an affiliate except in the case of "wraparound" notes. Unless certain conditions are met, the general partner may not finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general
S-58 799 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of assets, Partnership has credit agreements that restrict, among subject any asset of your partnership to one or more other things, its ability to incur indebtedness. See mortgages, deeds of trust or other security interest, "Risk Factors -- Risks of Significant Indebtedness" in so that the aggregate amount of indebtedness secured by the accompanying Prospectus. mortgages, deeds of trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. The general partner may not mortgage or subject to the encumbrance of a mortgage, deed of try or other security interest substantially all of the assets of your partnership at one time or from time to time without the approval of the limited partners holding a majority of the then outstanding units. Your partnership may not issue debt securities to the public. The general partner must use its best efforts to obtain level payment financing on the most favorable terms available to your partnership. In connection with the purchase of property by your partnership, the general partner must use its best efforts, subject to market conditions, to ensure that any first mortgage financing incurred in connection with such purchase which contains a provision for a balloon payment pro- vides that, (1) such balloon payment will not be due and payable prior to fifteen years from the later of the inception date of the loan or the acquisition date of the property and (2) periodic payments are in amounts which would be sufficient to self-liquidate the loan over a period of twenty to thirty years. Secon- dary financing which is more than 10% of the purchase price of the property which incurred in connection with a purchase, if any, will be fully amortizing or if not fully amortizing will not be due and payable during the expected holding period of the property. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters de- rights, powers and authority of a
S-59 800 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner of a partnership without limited partners under scribed under "Comparison of Ownership of Your Units California law. Limited partners have no right to and AIMCO OP Units -- Voting Rights" below. The general participate in the management or conduct of your partner may not be removed by the OP Unitholders with partnership's business or affairs nor any power or or without cause. authority to act for or on behalf of your partnership in any respect whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. No indemnification will be provided for settlements and other amounts incurred in connection liabilities arising under the Securities Act of 1933. with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership 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 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner under a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute becoming
S-60 801 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner and the substitute general partner a substituted limited partner pursuant to the AIMCO executes and acknowledges such instruments as the Operating Partnership Agreement. The general partner general partner deems necessary or advisable, including may exercise this right of approval to deter, delay or the adoption of your partnership's agreement of limited hamper attempts by persons to acquire a controlling partnership. No limited partner may substitute a interest in the AIMCO Operating Partnership. transferee of his units in such limited partner's place Additionally, the AIMCO Operating Partnership Agree- without the consent of the general partner which may be ment contains restrictions on the ability of OP withheld at the sole discretion of the general partner. Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership and (3) deletes or adds any provision the OP Unitholders. The general partner will seek the required by any applicable law. Your partnership's written consent of the OP Unitholders on the proposed agreement of limited partnership may not be amended to amendment or will call a meeting to vote thereon. See change your partnership to a general partnership, "Description of OP Units -- Amendment of the AIMCO extend the term of your partnership, change the Operating Partnership Agreement" in the accompanying liability of the general partner or the limited Prospectus. partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive an annual management fee equal to 7 1/2% of the its services as general partner of the AIMCO Operating Net Cash from Operations for each year payable Partnership. However, the general partner is entitled quarterly for its services as general partner and may to payments, allocations and distributions in its also receive reimbursement for expenses incurred in capacity as general partner of the AIMCO Operating such capacity. Partnership. In addition, the AIMCO Operating Part- nership 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.
S-61 802 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, a limited partner is not for the debts, negligence, no OP Unitholder has personal liability for liabilities, or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner and its affiliates may acquire real properties Operating Partnership Agreement expressly limits the for their own account, or engage in the acquisition, liability of the general partner by providing that the development, operation or management of real estate on general partner, and its officers and directors will behalf of other entities, including business ventures not be liable or accountable in damages to the AIMCO similar to, related to or in direct or indirect Operating Partnership, the limited partners or competition with any business of your partnership. assignees for errors in judgment or mistakes of fact or Neither your partnership nor any other partner will law or of any act or omission if the general partner or have any right in or to such other business ventures or such director or officer acted in good faith. See the income or profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-62 803 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner, ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of Partnership Agree- Part-
S-63 804 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS single transaction of substantially ment, the affirmative vote or nership or the admission of a all of the assets of your consent of holders of at least 50% successor general partner. partnership and approve or of the outstanding Preferred OP disapprove the mortgaging of all of Units will be necessary for Under the AIMCO Operating Partner- the assets of your partnership at effecting any amendment of any of ship Agreement, the general partner one time or from time to time. the provisions of the Partnership has the power to effect the Unit Designation of the Preferred acquisition, sale, transfer, The general partner may cause the OP Units that materially and exchange or other disposition of dissolution of your partnership by adversely affects the rights or any assets of the AIMCO Operating retiring. In such event, your preferences of the holders of the Partnership (including, but not partnership may be continued if, Preferred OP Units. The creation or limited to, the exercise or grant within ninety days of the retire- issuance of any class or series of of any conversion, option, ment, the limited partners holding partnership units, including, privilege or subscription right or more than 50% of the units elect a without limitation, any partner- any other right available in substitute general partner who is ship units that may have rights connection with any assets at any willing to continue your senior or superior to the Preferred time held by the AIMCO Operating partnership. OP Units, shall not be deemed to Partnership) or the merger, materially adversely affect the consolidation, reorganization or rights or preferences of the other combination of the AIMCO holders of Preferred OP Units. With Operating Partnership with or into respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-64 805 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fractional unit and on any securities exchange. The transferability of the OP Units. if such assignment is less than all Preferred OP Units are subject to Until the expiration of one year of the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such five units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignments taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor re- without the consent of the general conditions specified in the AIMCO ceives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as determined one year, such holders of Preferred "Description of OP Units -- by the general partner to comply OP Units has the right to transfer Transfers and Withdrawals" in the with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substi- the satisfaction of
S-65 806 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tuted as a limited partner if: (1) certain conditions specified in the After the first anniversary of the general partner consents in AIMCO Operating Partnership Agree- becoming a holder of Common OP writing, which consent may be ment, including the general Units, an OP Unitholder has the granted or denied in the sole partner's right of first refusal. right, subject to the terms and discretion of the general partner, conditions of the AIMCO Operating (2) the transferor elects to become After a one-year holding period, a Partnership Agreement, to require a substitute limited partner by holder may redeem Preferred OP the AIMCO Operating Partnership to delivering to the general partner a Units and receive in exchange redeem all or a portion of the written notice, executed and therefor, at the AIMCO Operating Common OP Units held by such party acknowledged by the assignor and Partnership's option, (i) subject in exchange for a cash amount based assignee of such election, (3) the to the terms of any Senior Units, on the value of shares of Class A assignee executes and acknowledges cash in an amount equal to the Common Stock. See "Description of such other instruments that the Liquidation Preference of the OP Units -- Redemption Rights" in general partner may require Preferred OP Units tendered for the accompanying Prospectus. Upon including an adoption of your redemption, (ii) a number of shares receipt of a notice of redemption, partnership's agreement of limited of Class I Cumulative Preferred the AIMCO Operating Partnership partnership, and (4) the assignee Stock of AIMCO that pay an may, in its sole and absolute pays the partnership for its aggregate amount of dividends yield discretion but subject to the expenses incurred in the equivalent to the distributions on restrictions on the ownership of transaction. the Preferred OP Units tendered for Class A Common Stock imposed under redemption and are part of a class AIMCO's charter and the transfer or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-66 807 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 808 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 809 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 810 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 811 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 812 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 813 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 814 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 815 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 7 1/2% of the Net Cash from Operations for each year payable quarterly for its services as a general partner and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership did not receive a management fee in 1998, however it did receive reimbursements totaling $150,000 in 1996, $120,000 in 1997, and $54,000 for the first six months of 1998. The property manager received management fees of $181,000 in 1996, $194,000 in 1997 and $98,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-75 816 YOUR PARTNERSHIP GENERAL Angeles Partners VIII was organized on August 10, 1978, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Bercado Shores, a 234-unit complex in Mishawka, Indiana; and Brittany Point, a 431-unit complex in Huntsville, Alabama. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 11,759 units of limited partnership interest issued and outstanding, which were held of record by 1,318 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated December 21, 1979, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that it was not expected that refinancing, sale or other disposition of a property could occur within four terms of acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each S-76 817 asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is now a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. No indemnification will be provided for liabilities arising under the Securities Act of 1933. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS Your partnership has not paid distributions since January 1, 1995. The original cost per unit was $1,000. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 1.204% interest in your partnership, including 24 units held by us and the interest held by Angeles Realty Corporation, as general partner of your partnership. In addition to the tender offers described under "Background and Reasons for the Offer -- Previous Tender Offers." Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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 S-77 818 voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 47,051 1995........................................................ 63,795 1996........................................................ 150,000 1997........................................................ 120,000 1998 (through June 30)...................................... 54,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $181,961 1995........................................................ 181,922 1996........................................................ 181,000 1997........................................................ 194,000 1998 (through June 30)...................................... 98,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative S-78 819 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Partners VIII appearing in Angeles Partners VIII Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 820 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 821 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 822 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 823 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 824
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 825
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 826
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 827
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 828 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 829 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS IX IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $544.00 per unit and an affiliate estimated the net liquidation value of your units to be $535.41 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 830 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners IX................................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78
i 831
PAGE ---- Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 832 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners IX. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 833 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 834 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid distributions since 1985. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 835 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $52.50 per unit to $440.00 per unit for the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $544.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $535.41 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 836 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that, unless you are tendering all of your units, you retain a minimum of 5 units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 837 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 838 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 839 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $544.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $535.41 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $52.50 per unit to $440.00 per unit for the quarterly periods from July 1, 1996 to June 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 840 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 841 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 842 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 843 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately an 18.14% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 844 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 845 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 846 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 847 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 848 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $52.50 to $440.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 849 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 5% of the Net Cash from Operations per year for its services as general partner and may also receive reimbursement for expenses incurred in such capacity. Your partnership reimbursed the general partner $107,000 for expenses for the first six months of 1998. The property manager received management fees of $189,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Partners IX was organized on September 14, 1979, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following S-18 850 five residential apartment complexes: The Pines of Northwest Crossing Apartments, a 412-unit complex in Houston, Texas; Panorama Terrace Apartments, a 227-unit complex in Birmingham, Alabama; Forest River Apartments, a 248-unit complex in Gadsden, Alabama; Village Green Apartments, a 337-unit complex in Montgomery, Alabama; and Rosemont Crossing, a 217-unit complex in San Antonio, Texas. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 19,975 units of limited partnership interest issued and outstanding, which were held of record by 1,474 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 851 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 852
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 853 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 854
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 855 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 856 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS IX The summary financial information of Angeles Partners IX for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners IX for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS IX
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 3,782 $ 3,706 $ 7,512 $ 7,462 $ 7,167 Net Income (Loss)........................................... (472) (331) (971) (912) (707) Net Income (Loss) per limited partnership unit.............. (23.38) (16.42) (48.11) (45.20) (35.07) Distributions per limited partnership unit.................. -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $13,607 $14,584 $14,141 $15,158 $15,813 Total Assets................................................ 15,779 17,081 16,487 17,700 17,774 Notes Payable............................................... 19,658 19,874 19,768 19,974 19,165 Partners' Capital (Deficit)................................. (4,623) (3,511) (4,151) (3,180) (2,268)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS IX ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0 $0
S-25 857 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $52.50 per unit to $440.00 per unit for the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $544.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $535.41 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 858 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 859 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a [few properties]. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid distributions since 1985. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a S-28 860 deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 18.14% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its S-29 861 ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In April 1998, Broad River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 2,528 units (representing approximately 13% of the number outstanding) at a cash purchase price of $325.00 per unit on August , 1998. Additionally, on July 27, 1998, Madison Partnership Liquidity Investors 64, LLC ("Madison") which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $150.00 per unit and purchased shares in , 1998. Following the tender offer by Madison, in August, 1998, Cooper River, L.L.C., then an affiliate of Insignia and now our affiliate commenced a tender offer for a maximum of 5,000 units (representing approximately 25% of the number outstanding) at a cash purchase price of $330.00 per unit. Pursuant to this tender offer, Cooper River, L.L.C. purchased units on , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in those tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 862 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 863 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 864 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 865 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you retain a minimum of 5 units (except for units held by IRAs and Keogh Plans). You may retain less than 5 units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 866 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 867 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 868 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 869 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 870 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 871 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 872 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 873 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1,252 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 6.27% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 874 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 875 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 876 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 877 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 878 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 879 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We \multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- The Pines of Northwest Crossing Apartments........................... $ % $ Panorama Terrace Apartments............ Forest River Apartments................ Village Green Apartments............... Rosemont Crossing......................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other S-48 880 costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 881 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid distributions since 1985. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 882 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 883 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $52.50 to $440 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from July 1, 1996 to June 30, 1998 an aggregate of 2,102 units (representing less than 10.6% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the period from to June 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES PARTNERS IX REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $150.00 $328.10 $ -- $ -- Second Quarter.................................. 150.00 329.60 310.00 342.00 First Quarter................................... 105.00 440.00(c) 289.00 330.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 105.00 330.00 235.00 301.00 Third Quarter................................... 65.10 348.77 265.00 349.00 Second Quarter.................................. 105.00 316.00 250.00 325.00 First Quarter................................... 52.50 329.00 311.00 317.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 240.20 335.00 230.00 310.00 Third Quarter................................... 2.00 279.00 260.00 330.00 Second Quarter.................................. 110.00 276.00 -- -- First Quarter................................... 200.00 249.00 -- -- Fiscal Year Ended December 31, 1995: Fourth Quarter.................................. 74.50 249.00 -- -- Third Quarter................................... 100.00 195.00 -- -- Second Quarter.................................. 70.00 135.00 -- -- First Quarter................................... 71.00 299.00 -- --
S-52 884 - --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) The general partner has information that indicates this reported sales price represented a single, isolated transaction for a minimal number of units and such sales price was materially higher than the range of sales prices for all other transactions during the quarter. The purchase price is approximately 4% less than the highest reported sales price of $342 per unit for other transactions during the six-month period prior to June 30, 1998. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-53 885 In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Village Green Apartments was appraised in March 1996 by an independent, third party appraiser, Koepper Tenet Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $8,100,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in August 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $544.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $476.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 886 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 887 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 888 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 889 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 890 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee or The purpose of the AIMCO Operating Partnership is to other equity interests in, or long-term leasehold conduct any business that may be lawfully conducted by interests in, improved residential, commercial and a limited partnership organized pursuant to the industrial real properties (other than manufactured Delaware Revised Uniform Limited Partnership Act (as home park communities) and to operate such properties amended from time to time, or any successor to such with the primary objectives of endeavoring to preserve statute) (the "Delaware Limited Partnership Act"), the purchasing power of capital invest and offset the provided that such business is to be conducted in a impact of inflation, providing capital growth and manner that permits AIMCO to be qualified as a REIT, distributing among the partners tax-sheltered cash unless AIMCO ceases to qualify as a REIT. The AIMCO flow. Subject to restrictions contained in your Operating Partnership is authorized to perform any and partnership's agreement of limited partnership, your all acts for the furtherance of the purposes and partnership may perform all acts necessary, advisable business of the AIMCO Operating Partnership, provided or convenient to the business of your partnership that the AIMCO Operating Partnership may not take, or including borrowing money and creating liens. 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.
S-59 891 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner may make offerings of units upon such contributions as may be established by the general terms and condition and in such amounts as the general partner in its sole discretion. The net capital partner in its sole discretion deems reasonable, so contribution need not be equal for all OP Unitholders. long as such terms and conditions are no more favorable No action or consent by the OP Unitholders is required than those offer to the limited partners who purchased in connection with the admission of any additional OP their units under the terms and conditions of the first Unitholder. See "Description of OP Units -- Management offering. The capital contribution need not be equal by the AIMCO GP" in the accompanying Prospectus. for all limited partners and no action or consent is Subject to Delaware law, any additional partnership required in connection with the admission of any interests may be issued in one or more classes, or one additional limited partners. Your partnership may not or more series of any of such classes, with such issue units in exchange for property. designations, preferences and relative, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property from your participant upon such terms and subject to such partnership nor sell or lease any real property to your conditions consistent with the AIMCO Operating Part- partnership either directly or through an affiliate. nership Agreement and applicable law as the general However, the general partner or an affiliate may partner, in its sole and absolute discretion, believes purchase property in its own name and temporarily hold to be advisable. Except as expressly permitted by the title thereto for the purpose of facilitating its AIMCO Operating Partnership Agreement, neither the acquisition or financing by your partnership if (1) the general partner nor any of its affiliates may sell, property is purchased by your partnership for a price transfer or convey any property to the AIMCO Operating no greater than the cost of the property to the general Partnership, directly or indirectly, except pursuant to partner or its affiliate, (2) no difference exists in transactions that are determined by the general partner the interest rates of the loans secured by the property in good faith to be fair and reasonable. at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may not make loans to the general partner or its affiliates but the general partner may lend money to your partnership if such loan is made at interest rates and finance charges not in excess of the rates and finance charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate which is charged from time to time by Citibank N.A., New York, New York on ninety-day unsecured loans to responsible and substantial borrowers. The general partner may not subject any asset of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by the general partner or any affiliate, except in certain circumstances. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase
S-60 892 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of assets, Partnership has credit agreements that restrict, among subject any asset of your partnership to one or more other things, its ability to incur indebtedness. See mortgages, deeds of trust or other security interest, "Risk Factors -- Risks of Significant Indebtedness" in so that the aggregate amount of indebtedness secured by the accompanying Prospectus. mortgages, deeds or trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. Your partnership may not issue debt securities to the public. The general partner must use its best efforts to obtain level payment financing on the most favorable terms available to your partnership. In connection with the purchase of property by your partnership, the general partner must use its best efforts, subject to market conditions, to ensure that any first mortgage financing incurred in connection with such purchase which contains a provision for a balloon payment provides that, (1) such balloon payment will not be due and payable prior to fifteen years from the later of the inception date of the loan or the acquisition date of the property and (2) periodic payments are in amounts which would be sufficient to completely repay the loan over a period of twenty to thirty years. Secondary financing which is more than 10% of the purchase price of the property which incurred in connection with a purchase, if any, will be fully amortizing or if not fully amortizing will not be due and payable during the expected holding period of the property. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters de- rights, powers and authority of a
S-61 893 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner of a partnership without limited partners under scribed under "Comparison of Ownership of Your Units California law. Limited partners have no right to and AIMCO OP Units -- Voting Rights" below. The general participate in the management or conduct of your partner may not be removed by the OP Unitholders with partnership's business or affairs nor any power or or without cause. authority to act for or on behalf of your partnership in any respect whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In the event that a claim for indemnification settlements and other amounts incurred in connection against liabilities arising under the Securities Act of with any actions relating to the operations of the 1933, as amended (other than for the payment by your AIMCO Operating Partnership, as set forth in the AIMCO partnership of expenses incurred or paid by the general Operating Partnership Agreement. The Delaware Limited partner in the successful defense of any action, suit Partnership Act provides that subject to the standards or proceeding) is asserted by the general partner in and restrictions, if any, set forth in its partnership connection with the units, your partnership will, agreement, a limited partnership may, and shall have unless in the opinion of its counsel the matter is the power to, indemnify and hold harmless any partner settled by controlling precedent, submit to a court of or other person from and against any and all claims and appropriate jurisdiction the question of whether such demands whatsoever. It is the position of the indemnification by it is against public policy as Securities and Exchange Commission that indemnification expressed in the Securities Act of 1933, as amended and of directors and officers for liabilities arising under has agreed to be governed by the court's final the Securities Act is against public policy and is adjudication of such issue. unenforceable pursuant to Section 14 of the Securities Act of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute becoming
S-62 894 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner and the substitute general partner a substituted limited partner pursuant to the AIMCO executes and acknowledges such instruments as the Operating Partnership Agreement. The general partner general partner deems necessary or advisable, including may exercise this right of approval to deter, delay or the adoption of your partnership's agreement of limited hamper attempts by persons to acquire a controlling partnership. No limited partner may substitute a interest in the AIMCO Operating Partnership. transferee of his units in such limited partner's place Additionally, the AIMCO Operating Partnership Agree- without the consent of the general partner which may be ment contains restrictions on the ability of OP withheld at the sole discretion of the general partner. Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership and (3) deletes or adds any provision the OP Unitholders. The general partner will seek the required by any applicable law. Your partnership's written consent of the OP Unitholders on the proposed agreement of limited partnership may not be amended to amendment or will call a meeting to vote thereon. See change your partnership to a general partnership, "Description of OP Units -- Amendment of the AIMCO extend the term of your partnership, change the Operating Partnership Agreement" in the accompanying liability of the general partner or the limited Prospectus. partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees Your general partner is entitled to receive an annual The general partner does not receive compensation for management fee equal to 5% of the Net Cash from its services as general partner of the AIMCO Operating Operations per year for its services as general partner Partnership. However, the general partner is entitled and may also receive reimbursement for expenses to payments, allocations and distributions in its incurred in such capacity. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not for the debts, negligence, no OP Unitholder has personal liability for liabilities, or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 participa-
S-63 895 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tion in the "control" of the AIMCO Operating Partnership's business, then a holder of 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner and its affiliates may acquire real properties Operating Partnership Agreement expressly limits the for their own account, or engage in the acquisition, liability of the general partner by providing that the development, operation or management of real estate on general partner, and its officers and directors will behalf of other entities, including business ventures not be liable or accountable in damages to the AIMCO similar to, related to or in direct or indirect Operating Partnership, the limited partners or competition with any business of your partnership. assignees for errors in judgment or mistakes of fact or Neither your partnership nor any other partner will law or of any act or omission if the general partner or have any right in or to such other business ventures or such director or officer acted in good faith. See the income or profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-64 896 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner and ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- The general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. In such event, your of the Partnership Unit Desig- acquisition, sale, transfer, partnership may be continued if, nation of the Preferred OP Units exchange or other disposition of within ninety days of the retire- that materially and adversely any assets of the AIMCO Operating ment, the limited partners holding affects the rights or preferences Partnership (including, but not more than 50% of the units elect a of the holders of the Preferred OP limited to, the exercise or grant substitute general partner who is Units. The creation or issuance of of any conversion, option, willing to continue your any class or series of partnership privilege or subscription right or partnership. units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another en- the exercise of the above de-
S-65 897 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS scribed voting rights, each tity, all without the consent of Preferred OP Units shall have one the OP Unitholders. (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations (as defined in your provided, however, that at any time portion as the general partner may partnership's agreement of limited and from time to time on or after in its sole and absolute discretion partnership) remaining after the fifth anniversary of the issue determine, of Available Cash (as compensation is paid to the general date of the Preferred OP Units, the defined in the AIMCO Operating partner for its services are to be AIMCO Operating Partnership may Partnership Agreement) generated by made quarterly to the partners in adjust the annual distribution rate the AIMCO Operating Partnership proportion to the interests in your on the Preferred OP Units to the during such quarter to the general partnership. The distributions lower of (i) % plus the annual partner, the special limited payable to the partners are not interest rate then applicable to partner and the holders of Common fixed in amount and depend upon the U.S. Treasury notes with a maturity OP Units on the record date operating results and net sales or of five years, and (ii) the annual established by the general partner refinancing proceeds available from dividend rate on the most recently with respect to such quarter, in the disposition of your issued AIMCO non-convertible accordance with their respective partnership's assets. preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on The general partner in its sole and the Preferred OP Units that may be absolute discretion may distribute in arrears. to the OP Unitholders Available Cash on a more frequent basis and When distributions are not paid in provide for an appropriate record full upon the Preferred OP Units or date. any Parity Units, all distributions declared upon the
S-66 898 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Preferred OP Units and any Parity The AIMCO Operating Partnership Units shall be declared ratably in Agreement requires the general proportion to the respective partner to take such reasonable amounts of distributions efforts, as determined by it in its accumulated, accrued and unpaid on sole and absolute discretion and the Preferred OP Units and such consistent with AIMCO's Parity Units. Unless full qualification as a REIT, to cause cumulative distributions on the the AIMCO Operating Partnership to Preferred OP Units have been de- distribute sufficient amounts to clared and paid, except in limited enable the general partner to circumstances, no distributions may transfer funds to AIMCO and enable be declared or paid or set apart AIMCO to pay stockholder dividends for payment by the AIMCO Operating that will (i) satisfy the Partnership and no other requirements for qualifying as a distribution of cash or other prop- REIT under the Code and the erty may be declared or made, Treasury Regulations and (ii) avoid directly or indirectly, by the any Federal income or excise tax AIMCO Operating Partnership with liability of AIMCO. See respect to any Junior Units, nor "Description of OP shall any Junior Units be re- Units -- Distributions" in the deemed, purchased or otherwise accompanying Prospectus. acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fraction unit and if on any securities exchange. The transferability of the OP Units. such assignment is less than all of Preferred OP Units are subject to Until the expiration of one year the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such five units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignment taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor without the consent of the general conditions specified in the AIMCO receives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as deter- one year, such holders of Preferred "Description of OP Units -- mined by the general partner to OP Units has the right to transfer Transfers and Withdrawals" in the comply with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substituted as a the satisfaction of certain After the first anniversary of limited partner if: (1) the general conditions specified in the AIMCO becoming a holder of Common OP partner consents in writing, which Operating Partnership Agreement, Units, an OP Unitholder has the consent may be granted or denied in including the general partner's right, subject to the terms and the sole discretion of the general right of first refusal. conditions of the AIMCO Operating partner, (2) the transferor elects Partnership Agreement, to require to become a substitute limited After a one-year holding period, a the AIMCO Operating Partnership to partner by delivering to the holder may redeem Preferred OP redeem all or a portion of the general partner a written notice, Units and receive in exchange Common OP Units held by such party executed and acknowledged by the therefor, at the AIMCO Operating in exchange for a cash amount based assignor and assignee of such Partnership's option, (i) subject on the value of shares of Class A election, (3) the assignee executes to the terms of any Senior Units, Common Stock. See "Description of and acknowledges such other cash in an amount equal to the OP Units -- Redemption Rights" in instruments that the general Liquidation Preference of the the accompanying Prospectus. partner may require including an Preferred adoption of your partnership's agreement of limited part-
S-67 899 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS nership, and (4) the assignee pays OP Units tendered for redemption, Upon receipt of a notice of the partnership for its expenses (ii) a number of shares of Class I redemption, the AIMCO Operating incurred in the transaction. Cumulative Preferred Stock of AIMCO Partnership may, in its sole and that pay an aggregate amount of absolute discretion but subject to dividends yield equivalent to the the restrictions on the ownership distributions on the Preferred OP of Class A Common Stock imposed Units tendered for redemption and under AIMCO's charter and the are part of a class or series of transfer restrictions and other preferred stock that is then listed limitations thereof, elect to cause on the New York Stock Exchange or AIMCO to acquire some or all of the another national securities tendered Common OP Units in exchange, or (iii) a number of exchange for Class A Common Stock, shares of Class A Common Stock of based on an exchange ratio of one AIMCO that is equal in Value to the share of Class A Common Stock for Liquidation Preference of the each Common OP Unit, subject to Preferred OP Units tendered for adjustment as provided in the AIMCO redemption. The Preferred OP Units Operating Partnership Agreement. may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 900 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 901 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 902 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 903 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 904 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 905 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 906 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 907 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 908 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 5% of the Net Cash from Operations per year for its services as general partner and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $232,000 in 1996, $208,000 in 1997 and $107,000 for the first six months of 1998. The property manager received management fees of $372,000 in 1996, $373,000 in 1997 and $189,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 909 YOUR PARTNERSHIP GENERAL Angeles Partners IX was organized on September 14, 1979, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following five residential apartment complexes: The Pines of Northwest Crossing Apartments, a 412-unit complex in Houston, Texas; Panorama Terrace Apartments, a 227-unit complex in Birmingham, Alabama; Forest River Apartments, a 248-unit complex in Gadsden, Alabama; Village Green Apartments, a 337-unit complex in Montgomery, Alabama; and Rosemont Crossing, a 217-unit complex in San Antonio, Texas. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. The property manager who is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 19,975 units of limited partnership interest issued and outstanding, which were held of record by 1,474 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated December 21, 1979, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-78 910 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933, as amended (other than for the payment by your partnership of expenses incurred or paid by the general partner in the successful defense of any action, suit or proceeding) is asserted by the general partner in connection with the units, your partnership will, unless in the opinion of its counsel the matter is settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended and has agreed to be governed by the court's final adjudication of such issue. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-79 911 DISTRIBUTIONS Your partnership has not paid any distributions since 1985. The original cost per unit was $1,000.00. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately an 18% interest in your partnership, including 3,476 units indirectly held by us and the interest held by Angeles Realty Corporation, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 89,998 1995........................................................ 143,223 1996........................................................ 232,000 1997........................................................ 208,000 1998 (through June 30)...................................... 107,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $344,222 1995........................................................ 356,418 1996........................................................ 372,000 1997........................................................ 373,000 1998 (through June 30)...................................... 189,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 912 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 913 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Partners IX appearing in Angeles Partners IX Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 914 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 915 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 916 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 917 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 918
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 919
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 920
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 921
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 922 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 923 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS X IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $245.00 per unit and an affiliate estimated the net liquidation value of your units to be $242.96 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 924 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-18 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners X................................. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78
i 925
PAGE ---- Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 926 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners X. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 927 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 928 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid any distributions since 1985. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 929 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $62.00 per unit from January 1, 1997 through September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $245 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $242.96 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 930 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 931 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 932 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 933 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $245 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $242.96 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $62.00 per unit from January 1, 1997 through September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 934 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 935 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 936 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 937 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 1.22% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such S-12 938 assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. S-13 939 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . S-14 940 Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We S-15 941 estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........
S-16 942 Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $1.00 to $62.00 Estimated liquidation proceeds............................ $
S-17 943 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 5% of the Net Cash from Operations for each year for its services as general partner of your partnership so long as the limited partners receive 5% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements of $50,000 for the six months ended June 30, 1998. The property manager received management fees of $83,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. S-18 944 Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Partners X was organized on June 26, 1980, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Greentree Apartments, a 178-unit complex in Mobile, Alabama; Carriage Hills Apartments, a 143-unit complex in East Lansing, Michigan; and Vista Hills Apartments, a 264-unit complex in El Paso, Texas, which is under contract to sell to an unaffiliated party in November 1998. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 18,625 units of limited partnership interest issued and outstanding, which were held of record by 1,860 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 945 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 946
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 947 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 948
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 949 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 950 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS X The summary financial information of Angeles Partners X for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners X for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS X
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 IN THOUSANDS, EXCEPT UNIT DATA ------- -------- ------- -------- -------- OPERATING DATA: Total Revenues............................................ $ 1,662 $ 2,232 $ 9,010 $ 4,575 $ 4,488 Net Income (Loss)......................................... (256) (361) 3,635 (804) (909) Net Income (Loss) per limited partnership unit............ (13.58) (19.16) 193.13 (42.69) (48.28) Distributions per limited partnership unit................ -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- -------- ------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $ 5,286 $ 7,766 $ 5,459 $ 7,981 $ 8,572 Total Assets.............................................. 7,659 9,217 7,992 9,435 10,059 Notes Payable............................................. 14,257 18,683 14,321 18,774 18,452 Partners' Capital (Deficit)............................... (7,485) (11,206) (7,224) (10,845) (10,041)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS X ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 951 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $62.00 per unit from January 1, 1997 through September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $245.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $242.96 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 952 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 953 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid any distributions on your units since 1985. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a S-28 954 deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia S-29 955 Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a tender offer had been made to acquire units of your partnership. On August 13, 1998, Cooper River Properties, L.L.C. then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it has offered to acquire 8,000 units (representing approximately 43% of the number outstanding) at a cash purchase price of $150 per unit. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $20 per unit up to a maximum of 4.9% of outstanding units on August 7, 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited S-30 956 partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units S-31 957 have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 958 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 959 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 960 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 961 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 962 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 963 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 964 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 965 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 966 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 967 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 809 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 4.34% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 968 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 969 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 970 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 971 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 972 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 973 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Greentree Apartments $ % $ Carriage Hills Apartments Vista Hills Apartments
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 974 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 975 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid any distributions since 1985. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 976 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 977 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $1.00 to $62.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 1,720 units (representing less than 9.23% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1995 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. S-52 978 ANGELES PARTNERS X REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $21.50 $ 50.00 (c) (c) Second Quarter.................................. 13.50 45.00 50.00 55.00 First Quarter................................... 1.00 50.00 (d) (d) Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 40.54 42.00 21.00 35.00 Third Quarter................................... 10.00 62.00 35.00 62.00 Second Quarter.................................. 10.00 10.00 (d) (d) First Quarter................................... 33.00 81.00 (d) (d) Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 10.00 47.04 33.00 81.00 Third Quarter................................... 15.00 39.99 37.00 37.00 Second Quarter.................................. 16.00 41.01 -- -- First Quarter................................... 15.00 36.00 -- -- Fiscal Year Ended December 31, 1995: Fourth Quarter.................................. 45.00 155.00 -- -- Third Quarter................................... 1.00 17.00 -- -- Second Quarter.................................. -- -- -- -- First Quarter................................... 1.00 20.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Not yet published. (d) No units were reported by the Partnership Spectrum as having been sold during the quarter. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. S-53 979 Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Carriage Hills Apartments was appraised in July 1997 by an independent, third party appraiser, Joseph J. Blake & Associates, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $6,740,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Estimates of Net Asset Value. An affiliate of your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in August 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $245.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." S-54 980 Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $94.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-55 981 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership S-56 982 and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. S-57 983 Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 984 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash Flow from Operations (as defined of the AIMCO Operating Partnership's agreement of in your partnership's agreement of limited partner- limited partnership (the "AIMCO Operating Partnership ship). The termination date of your partnership is Agreement") or as provided by law. See "Description of December 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee or The purpose of the AIMCO Operating Partnership is to other equity interests in, or long-term leasehold conduct any business that may be lawfully conducted by interests in, improved residential, commercial and a limited partnership organized pursuant to the industrial real properties (other than manufactured Delaware Revised Uniform Limited Partnership Act (as home park communities) and to operate such properties amended from time to time, or any successor to such with the primary objectives of endeavoring to preserve statute) (the "Delaware Limited Partnership Act"), the purchasing power of capital, invest and offset the provided that such business is to be conducted in a impact of inflation, provide capital growth and manner that permits AIMCO to be qualified as a REIT, distributions among the partners tax-sheltered cash unless AIMCO ceases to qualify as a REIT. The AIMCO flow. Subject to restrictions contained in your Operating Partnership is authorized to perform any and partnership's agreement of limited partnership, your all acts for the furtherance of the purposes and partnership may perform all acts necessary, advisable business of the AIMCO Operating Partnership, provided or convenient to the business of your partnership that the AIMCO Operating Partnership may not take, or including borrowing money and creating liens. 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.
S-59 985 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 37,500 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. Your partnership may not No action or consent by the OP Unitholders is required issue units in exchange for property. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property or acquire any participant upon such terms and subject to such loan or lease from your partnership or sell or lease conditions consistent with the AIMCO Operating Part- any real property, loan or lease to your partnership nership Agreement and applicable law as the general either directly or through an affiliate. However, the partner, in its sole and absolute discretion, believes general partner or an affiliate may purchase property to be advisable. Except as expressly permitted by the in its own name and temporarily hold title thereto for AIMCO Operating Partnership Agreement, neither the the purpose of facilitating its acquisition or general partner nor any of its affiliates may sell, financing by your partnership if (1) the property is transfer or convey any property to the AIMCO Operating purchased by your partnership for a price no greater Partnership, directly or indirectly, except pursuant to than the cost of the property to the general partner or transactions that are determined by the general partner its affiliate, (2) no difference exists in the interest in good faith to be fair and reasonable. rates of the loans secured by the property at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may not make loans to the general partner or its affiliates but the general partner may lend money to your partnership if such loan is made at interest rates and charges not in excess of the rates and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate which is charged from time to time by Bank of America National Trust and Savings Association, Los Angeles, California, on ninety-day unsecured loans to responsible and substantial borrowers. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its
S-60 986 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP affiliates are the obligee or secured party. Your partnership is also prohibited from entering into any loan, financing or other investment transaction with a REIT or similar lending institution which may in the future be organized by the general partner or any of its affiliates unless such loan, financing or other investment transaction is competitive in price and terms with financing or similar investment transaction available to your partnership from nonaffiliated lending institutions making similar loans or engaging in similar transactions. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of assets, Partnership has credit agreements that restrict, among subject any asset of your partnership to one or more other things, its ability to incur indebtedness. See mortgages, deeds of trust or other security interest, "Risk Factors -- Risks of Significant Indebtedness" in so that the aggregate amount of indebtedness secured by the accompanying Prospectus. mortgages, deeds or trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. The general partner may not acquire any real property which, at the date of the acquisition, is subject to indebtedness secured by a mortgage, deed of trust or other security interest on the real property having an unpaid principal balance immediately after the acquisition equal to less than 40% of the purchase price of the real property paid by your partnership. Your partnership may not issue debt securities to the public. In connection with the purchase of property by your partnership, the general partner must use its best efforts, subject to market conditions, to ensure that any first mortgage financing incurred in connection with such purchase which contains a provision for a balloon payment, (1) such balloon payment will not be due and payable prior to ten years from the later of the inception date of the loan or the acquisition date of the property, (2) such loan will provide for periodic payment in amounts which would be sufficient to completely repay the loan over a period of not less than twenty nor more than thirty years and (3) the maturity date of the balloon payment will be at least three years beyond the end of your partnership's estimated holding period for the property. Secondary financing which is more than 10% of the purchase price of the property which incurred in connection with a purchase, if any, will be fully amortizing or if not fully amortizing will not be due and payable during the expected holding period of the property. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
S-61 987 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters described under rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without limited partners under California Units -- Voting Rights" below. The general partner may law. Limited partners have no right to participate in not be removed by the OP Unitholders with or without the management or conduct of your partnership's cause. business or affairs nor any power or authority to act for or on behalf of your partnership in any respect In addition to the powers granted a general partner of whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In the event that a claim for indemnification settlements and other amounts incurred in connection against liabilities arising under the Securities Act of with any actions relating to the operations of the 1933, as amended (other than for the payment by your AIMCO Operating Partnership, as set forth in the AIMCO partnership of expenses incurred or paid by the general Operating Partnership Agreement. The Delaware Limited partner in the successful defense of any action, suit Partnership Act provides that or
S-62 988 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP proceeding) is asserted by the general partner in subject to the standards and restrictions, if any, set connection with the units, your partnership will, forth in its partnership agreement, a limited unless in the opinion of its counsel the matter is partnership may, and shall have the power to, indemnify settled by controlling precedent, submit to a court of and hold harmless any partner or other person from and appropriate jurisdiction the question of whether such against any and all claims and demands whatsoever. It indemnification by it is against public policy as is the position of the Securities and Exchange Commis- expressed in the Securities Act of 1933, as amended and sion that indemnification of directors and officers for will inform the court of the position of the SEC with liabilities arising under the Securities Act is against respect to such indemnification. Your partnership as public policy and is unenforceable pursuant to Section agreed to be governed by the court's final adjudication 14 of the Securities Act of 1933. of such issue.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner and the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership. No limited partner may controlling interest in the AIMCO Operating Partner- substitute a transferee of his units in such limited ship. Additionally, the AIMCO Operating Partnership partner's place without the consent of the general Agreement contains restrictions on the ability of OP partner which may be withheld at the sole discretion of Unitholders to transfer their OP Units. See the general partner. "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership and (3) deletes or adds any provision the OP Unitholders. The general partner will seek the required by any applicable law. Your partnership's written consent of the OP Unitholders on the proposed agreement of limited partnership may not be amended to amendment or will call a meeting to vote thereon. See change your partnership to a general partnership, "Description of OP Units -- Amendment of the AIMCO extend the term of your partnership, change the Operating Partnership Agreement" in the accompanying liability of the general partner or the limited Prospectus. partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive an annual management fee equal to 5% of the Net its services as general partner of the AIMCO Operating Cash from Operations for each year for its services as Partnership. However, the general partner is entitled general partner of your partnership so long as the to payments, allocations and distributions in its limited partners receive 5% per annum on their capital capacity as general partner of the AIMCO Operating investment and may also receive reimbursement for Partnership. In addition, the AIMCO Operating Part- expenses incurred in such capacity nership 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.
S-63 989 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner and its affiliates may acquire real properties Operating Partnership Agreement expressly limits the for their own account, or engage in the acquisition, liability of the general partner by providing that the development, operation or management of real estate on general partner, and its officers and directors will behalf of other entities, including business ventures not be liable or accountable in damages to the AIMCO similar to, related to or in direct or indirect Operating Partnership, the limited partners or competition with any business of your partnership. assignees for errors in judgment or mistakes of fact or Neither your partnership nor any other partner will law or of any act or omission if the general partner or have any right in or to such other business ventures or such director or officer acted in good faith. See the income or profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-64 990 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner and ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are Partnership Agree- Part-
S-65 991 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS part of single transaction of ment, the affirmative vote or nership or the admission of a substantially all of the assets of consent of holders of at least 50% successor general partner. your partnership. of the outstanding Preferred OP Units will be necessary for Under the AIMCO Operating Partner- The general partner may cause the effecting any amendment of any of ship Agreement, the general partner dissolution of your partnership by the provisions of the Partnership has the power to effect the retiring. In such event, your Unit Designation of the Preferred acquisition, sale, transfer, partnership may be continued if, OP Units that materially and exchange or other disposition of within ninety days of the retire- adversely affects the rights or any assets of the AIMCO Operating ment, the limited partners holding preferences of the holders of the Partnership (including, but not more than 50% of the units elect a Preferred OP Units. The creation or limited to, the exercise or grant substitute general partner who is issuance of any class or series of of any conversion, option, willing to continue your partnership units, including, privilege or subscription right or partnership. without limitation, any partner- any other right available in ship units that may have rights connection with any assets at any senior or superior to the Preferred time held by the AIMCO Operating OP Units, shall not be deemed to Partnership) or the merger, materially adversely affect the consolidation, reorganization or rights or preferences of the other combination of the AIMCO holders of Preferred OP Units. With Operating Partnership with or into respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-66 992 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fraction unit and if on any securities exchange. The transferability of the OP Units. such assignment is less than all of Preferred OP Units are subject to Until the expiration of one year the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such five units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignment taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor without the consent of the general conditions specified in the AIMCO receives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as deter- one year, such holders of Preferred "Description of OP Units -- mined by the general partner to OP Units has the right to transfer Transfers and Withdrawals" in the comply with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to transferee may be substi-
S-67 993 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tuted as a limited partner if: (1) any person, subject to the After the first anniversary of the general partner consents in satisfaction of certain conditions becoming a holder of Common OP writing, which consent may be specified in the AIMCO Operating Units, an OP Unitholder has the granted or denied in the sole Partnership Agreement, including right, subject to the terms and discretion of the general partner, the general partner's right of conditions of the AIMCO Operating (2) the transferor elects to become first refusal. Partnership Agreement, to require a substitute limited partner by the AIMCO Operating Partnership to delivering to the general partner a After a one-year holding period, a redeem all or a portion of the written notice, executed and holder may redeem Preferred OP Common OP Units held by such party acknowledge by the assignor and Units and receive in exchange in exchange for a cash amount based assignee of such election, (3) the therefor, at the AIMCO Operating on the value of shares of Class A assignee executes and acknowledges Partnership's option, (i) subject Common Stock. See "Description of such other instruments that the to the terms of any Senior Units, OP Units -- Redemption Rights" in general partner may require cash in an amount equal to the the accompanying Prospectus. Upon including an adoption of your Liquidation Preference of the receipt of a notice of redemption, partnership's agreement of limited Preferred OP Units tendered for the AIMCO Operating Partnership partnership, and (4) the assignee redemption, (ii) a number of shares may, in its sole and absolute pays the partnership for its of Class I Cumulative Preferred discretion but subject to the expenses incurred in the Stock of AIMCO that pay an restrictions on the ownership of transaction. aggregate amount of dividends yield Class A Common Stock imposed under equivalent to the distributions on AIMCO's charter and the transfer the Preferred OP Units tendered for restrictions and other limitations redemption and are part of a class thereof, elect to cause AIMCO to or series of preferred stock that acquire some or all of the tendered is then listed on the New York Common OP Units in exchange for Stock Exchange or another national Class A Common Stock, based on an securities exchange, or (iii) a exchange ratio of one share of number of shares of Class A Common Class A Common Stock for each Com- Stock of AIMCO that is equal in mon OP Unit, subject to adjustment Value to the Liquidation Preference as provided in the AIMCO Operating of the Preferred OP Units tendered Partnership Agreement. for redemption. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 994 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 995 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 996 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 997 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 998 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 999 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 1000 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 1001 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 1002 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 5% of the Net Cash from Operations for each year for its services as general partner of your partnership so long as the limited partners receive 5% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements of $152,000 in 1996, 142,000 in 1997 and $50,000 for the six months ended June 30, 1998. The property manager received management fees of $227,000 in 1996, $216,000 in 1997 and $83,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 1003 YOUR PARTNERSHIP GENERAL Angeles Partners X was organized on June 26, 1980, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Greentree Apartments, a 178-unit complex in Mobile, Alabama; Carriage Hills Apartments, a 143-unit complex in East Lansing, Michigan; and Vista Hills Apartments, a 264-unit complex in El Paso, Texas, which is under contract to sell to an unaffiliated party in November 1998. The general partner of your partnership is Angeles Realty Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 18,625 units of limited partnership interest issued and outstanding, which were held of record by 1,860 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-K SB, as amended, for the year ended December 31, 1997; - Quarterly Reports on Form 10-Q SB, as amended, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated April 30, 1981, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-78 1004 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933, as amended (other than for the payment by your partnership of expenses incurred or paid by the general partner in the successful defense of any action, suit or proceedings) is asserted by the general partner in connection with the units, your partnership will, unless in the opinion of its counsel the matter is settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended and will inform the court of the position of the SEC with respect to such indemnification. Your partnership has agreed to be governed by the court's final adjudication of such issue. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-79 1005 DISTRIBUTIONS Your partnership has not paid any distributions during the last three years. The original cost per unit was $1,000. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 1.2% interest in your partnership, including 135 units held by us and the interest held by Angeles Realty Corporation, as general partner of your partnership. In addition to the tender offers described under "Background and Reasons for the Offer -- Previous Tender Offers". Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $145,326 1995........................................................ 124,000 1996........................................................ 152,000 1997........................................................ 142,000 1998 (through June 30)...................................... 50,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $217,652 1995........................................................ 222,000 1996........................................................ 227,000 1997........................................................ 216,000 1998 (through June 30)...................................... 83,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 1006 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT Merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 1007 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Partners X appearing in Angeles Partners X Annual Report (Form 10-K SB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 1008 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1009 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1010 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1011 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1012
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1013
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1014
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1015
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1016 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1017 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS XI IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $229.00 per unit and an affiliate estimated the pro forma net liquidation value of your units to be $208.00 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1018 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units.. S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners XI................................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44
PAGE ---- Accounting Treatment......................... S-44 CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76
i 1019
PAGE ---- YOUR PARTNERSHIP............................... S-77 General...................................... S-77 Additional Information Concerning Your Partnership................................ S-77 Term of the Partnership...................... S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1020 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners XI. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1021 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1022 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Since January 1, 1995, your partnership has paid a single distribution of $0.61 per unit in 1996. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1023 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $220.00 per unit and an affiliate of your general partner estimated the pro forma net liquidation value of your units to be $208.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1024 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. You may tender fractional units only if you are tendering all of your units or if you and the transferee each hold at least 5 units after the transfer. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1025 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1026 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1027 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $229.00 per unit. and an affiliate of your general partner estimated the pro forma net liquidation value of your units to be $200.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 1028 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 1029 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 1030 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 1031 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 0.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 1032 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1033 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1034 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1035 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1036 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $1.00 to $100.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1037 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 7.5% of the Net Cash from Operations for each year for its services as general partner of your partnership so long as the limited partners receive 5% per annum on their capital investment. The general partner may also receive reimbursement for expenses incurred in its capacity as general partner. The general manager received total fees and reimbursements of $65,000 for the first six months of 1998. The property manager received management fees of $184,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. S-18 1038 YOUR PARTNERSHIP Angeles Partners XI was organized on February 14, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following properties: Fox Run I and II Apartments, a 776-unit complex in Plainsboro, New Jersey. Your partnership also has a 41.1% investment in the Princeton Meadows Golf Course Joint Venture in Plainsboro, New Jersey. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 80 units of limited partnership interest issued and outstanding, which were held of record by 3,988 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1039 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, the period July 29, 1994 (the date of inception) through December 31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(a) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1040
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1041 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1042
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1043 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1044 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS XI The summary financial information of Angeles Partners XI for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners XI for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS XI
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 4,084 $ 3,530 $ 7,160 $ 6,965 $ 9,768 Net Income (Loss)........................................... 227 (323) (673) 1,320 556 Net Income (Loss) per limited partnership unit.............. 5.68 (8.07) (16.81) (32.80) 19.29 Distributions per limited partnership unit.................. -- -- -- 0.61 --
JUNE 30, DECEMBER 31, -------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ 11,388 12,582 11,994 13,133 14,111 Total Assets................................................ 14,406 14,676 14,273 15,377 15,841 Notes Payable............................................... 31,270 31,273 31,272 31,275 30,659 Partners' Capital (Deficit)................................. (18,331) (18,208) (18,558) (17,885) (16,541)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS XI ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 1045 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $229.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the pro forma net liquidation value of your units to be $208.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1046 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 1047 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Since January 1, 1995, your partnership has paid a single distribution of $0.61 per unit in 1996. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 1048 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 1049 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a tender offer had been made to acquire units of your partnership. In August 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer for $150 per unit and purchased units in , 1998. Prior to such tender offer, in August 1998, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $33.00 per unit and purchased units in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 1050 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 1051 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1052 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1053 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. You may tender fractional units only if you are tendering all of your units or if you and the transferee each hold at least 5 units after the transfer. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 1054 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1055 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1056 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1057 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1058 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1059 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1060 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1061 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1,034 units in your partnership have been transferred during the twelve months ended December 31, 1997(representing approximately 2.61% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1062 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1063 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1064 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1065 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1066 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1067 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Fox Run Apartments.......................... $ % $ Princeton Meadow Golf Course Joint Venture...................................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 1068 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 1069 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Since January 1, 1996, your partnership has paid only a single distribution of $0.61 per unit in 1996. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 1070 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 1071 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $1.00 to $100.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 3,054 units (representing less than 7.7% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES PARTNERS XI REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $30.00 $ 70.00 Second Quarter............................................ 16.00 38.00 First Quarter............................................. 23.00 100.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 26.00 44.00 Third Quarter............................................. 1.00 42.00 Second Quarter............................................ 5.00 43.00 First Quarter............................................. 10.00 50.90 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 6.83 48.50 Third Quarter............................................. 17.50 54.80 Second Quarter............................................ 5.00 42.00 First Quarter............................................. 15.00 68.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-52 1072 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Fox Run Apartments was appraised in March 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $32,600,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. An affiliate of your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $229.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after S-53 1073 provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $132.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-54 1074 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and S-55 1075 local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect S-56 1076 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 1077 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests in conduct any business that may be lawfully conducted by residential, commercial and industrial real properties, a limited partnership organized pursuant to the either directly or indirectly including through Delaware Revised Uniform Limited Partnership Act (as investments in partnerships or joint ventures with amended from time to time, or any successor to such others. Subject to restrictions contained in your statute) (the "Delaware Limited Partnership Act"), partnership's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-58 1078 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner may make offerings of units upon such contributions as may be established by the general terms and conditions and in such amounts as the general partner in its sole discretion. The net capital partner in its sole discretion deems reasonable, so contribution need not be equal for all OP Unitholders. long as such terms and conditions are no more favorable No action or consent by the OP Unitholders is required than those offered to the limited partners who in connection with the admission of any additional OP purchased their units under the terms and conditions of Unitholder. See "Description of OP Units -- Management the first offering. The capital contribution need not by the AIMCO GP" in the accompanying Prospectus. be equal for all limited partners and no action or Subject to Delaware law, any additional partnership consent is required in connection with the admission of interests may be issued in one or more classes, or one any additional limited partners. Your partnership may or more series of any of such classes, with such not issue units in exchange for property. designations, preferences and relative, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property from your participant upon such terms and subject to such partnership or sell or lease any real property to your conditions consistent with the AIMCO Operating Part- partnership either directly or through an affiliate. nership Agreement and applicable law as the general However, the general partner or an affiliate may partner, in its sole and absolute discretion, believes purchase property in its own name and temporarily hold to be advisable. Except as expressly permitted by the title thereto for the purpose of facilitating its AIMCO Operating Partnership Agreement, neither the acquisition or financing by your partnership if (1) the general partner nor any of its affiliates may sell, property is purchased by your partnership for a price transfer or convey any property to the AIMCO Operating no greater than the cost of the property to the general Partnership, directly or indirectly, except pursuant to partner or its affiliate, (2) no difference exists in transactions that are determined by the general partner the interest rates of the loans secured by the property in good faith to be fair and reasonable. at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may not make loans to the general partner or its affiliates but the general partner may lend money to your partner- ship if such loan is made at interest rates and charges not in excess of the rates and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate which is charged from time to time by Bank of America National Trust and Savings Association, Los Angeles, California, on ninety-day unsecured loans to responsible and substantial borrowers. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party.
S-59 1079 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of assets, Partnership has credit agreements that restrict, among subject any asset of your partnership to one or more other things, its ability to incur indebtedness. See mortgages, deeds of trust or other security interest, "Risk Factors -- Risks of Significant Indebtedness" in so that the aggregate amount of indebtedness secured by the accompanying Prospectus. mortgages, deeds or trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. Your partnership may not issue debt securities to the public. The general partner may not acquire any real property which, at the date of the acquisition, is subject to indebtedness secured by a mortgage, deed of trust or other security interest on the real property having an unpaid principal balance immediately after the acquisition equal to less than 40% of the purchase price of the real property paid by your partnership. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters described under rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without limited partners under California Units -- Voting Rights" below. The general partner may law. Limited partners have no right to participate in not be removed by the OP Unitholders with or without the management or conduct of your partnership's cause. business or affairs nor any power or authority to act for or on behalf of your partnership in any respect In addition to the powers granted a general partner of whatsoever. 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
S-60 1080 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In the event that a claim for indemnification settlements and other amounts incurred in connection against liabilities arising under the Securities Act of with any actions relating to the operations of the 1933, as amended (other than for the payment by your AIMCO Operating Partnership, as set forth in the AIMCO partnership for expenses incurred or paid by the Operating Partnership Agreement. The Delaware Limited general partner in the successful defense of any Partnership Act provides that subject to the standards action, suit or proceeding) is asserted by the general and restrictions, if any, set forth in its partnership partner in connection with the units, your partnership agreement, a limited partnership may, and shall have will, unless in the opinion of its counsel, the matter the power to, indemnify and hold harmless any partner is settled by controlling precedent, submit to a court or other person from and against any and all claims and of appropriate jurisdiction the question of whether demands whatsoever. It is the position of the such indemnification by it is against public policy as Securities and Exchange Commission that indemnification expressed in the Securities Act of 1933, as amended and of directors and officers for liabilities arising under will agree to be governed by the court's final the Securities Act is against public policy and is adjudication of such issue. unenforceable pursuant to Section 14 of the Securities Act of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner and the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership. The general partner may admit controlling interest in the AIMCO Operating Partner- additional general partners without the consent of the ship. Additionally, the AIMCO Operating Partnership limited partners. No limited partner may substitute a Agreement contains restrictions on the ability of OP transferee of his units in such limited partner's place Unitholders to transfer their OP Units. See without the consent of the general partner which may be "Description of OP Units -- Transfers and Withdrawals" withheld at the sole discretion of the general partner. in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited the general
S-61 1081 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners if such amendment: (1) adds to the partner may, without the consent of the OP Unitholders, representation, duties, or obligations of the general amend the AIMCO Operating Partnership Agreement, partner or its affiliates or surrenders any right or amendments to the AIMCO Operating Partnership Agreement power granted to the general partner or its affiliates require the consent of the holders of a majority of the for the benefit of the limited partner, (2) cures any outstanding Common OP Units, excluding AIMCO and ambiguity, corrects or supplements any provision which certain other limited exclusions (a "Majority in may be inconsistent with any other provision or makes Interest"). Amendments to the AIMCO Operating any other provision with respect to matters or Partnership Agreement may be proposed by the general questions arising under your partnership's agreement of partner or by holders of a Majority in Interest. limited partnership consistent with the provisions of Following such proposal, the general partner will your partnership's agreement of limited partnership, submit any proposed amendment to the OP Unitholders. (3) deletes or adds any provision required by any The general partner will seek the written consent of applicable law, (4) reflects any reduction of the the OP Unitholders on the proposed amendment or will partners' capital accounts and (5) reflects a change in call a meeting to vote thereon. See "Description of OP the name or the location of the principal place of Units -- Amendment of the AIMCO Operating Partnership business of your partnership. Your partnership's agree- Agreement" in the accompanying Prospectus. ment of limited partnership may not be amended to change your partnership to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. Any amendment which diminishes the rights of the general partner may not be made without the consent of the general partner or all of the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual management fee equal to 7.5% of the Net Cash its services as general partner of the AIMCO Operating from Operations for each year for its services as Partnership. However, the general partner is entitled general partner of your partnership so long as the to payments, allocations and distributions in its limited partners receive 5% per annum on their capital capacity as general partner of the AIMCO Operating investment and may also receive reimbursement for Partnership. In addition, the AIMCO Operating Part- expenses incurred in such capacity. nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not for the debts, negligence, no OP Unitholder has personal liability for liabilities, or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-62 1082 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Under your partnership's agreement of limited Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner may delegate any or all of its powers, rights Operating Partnership Agreement expressly limits the and obligations under your partnership's agreement of liability of the general partner by providing that the limited partners and in furtherance of any such general partner, and its officers and directors will delegation may appoint, employ or contract with any not be liable or accountable in damages to the AIMCO person for the account of your partnership for the Operating Partnership, the limited partners or transaction of the business of your partnership, which assignees for errors in judgment or mistakes of fact or person may, under the supervision of the general law or of any act or omission if the general partner or partner, perform such acts or services for your such director or officer acted in good faith. See partnership as the general partnership may approve. The "Description of OP Units -- Fiduciary Responsibilities" general partner and its affiliates may acquire real in the accompanying Prospectus. properties for their own account, or engage in the acquisition, development, operation or management of real estate on behalf of other entities, including business ventures similar to, related to or in direct or indirect competition with any business of your partnership. Neither your partnership nor any other partner will have any right in or to such other business ventures or the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-63 1083 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner and ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. In such event, your of the Partnership Unit Desig- acquisition, sale, transfer, partnership may be continued by the nation of the Preferred OP Units exchange or other disposition of remaining general partner if, in that materially and adversely any assets of the AIMCO Operating the opinion of counsel to your affects the rights or preferences Partnership (including, but not partnership, such election would of the holders of the Preferred OP limited to, the exercise or grant not jeopardize your partnership's Units. The creation or issuance of of any conversion, option, status as a partnership for tax any class or series of partnership privilege or subscription right or purposes. If no general partner units, including, without any other right available in remains, your partnership may limitation, any partnership units connection with any assets at any continue if, within ninety days of that may have rights senior or time held by the AIMCO Operating the retirement, the limited superior to the Preferred OP Units, Partnership) or the merger, partners holding more than 50% of shall not be deemed to materially consolidation, reorganization or the units elect a substitute adversely affect the rights or other combination of the AIMCO general partner who is willing to preferences of the holders of Operating Partnership with or into continue your partnership. Preferred OP Units. With respect to another en- the exercise of the above de-
S-64 1084 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS scribed voting rights, each tity, all without the consent of Preferred OP Units shall have one the OP Unitholders. (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to distributions
S-65 1085 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS accumulated, accrued and unpaid on take such reasonable efforts, as the Preferred OP Units and such determined by it in its sole and Parity Units. Unless full absolute discretion and consistent cumulative distributions on the with AIMCO's qualification as a Preferred OP Units have been de- REIT, to cause the AIMCO Operating clared and paid, except in limited Partnership to distribute circumstances, no distributions may sufficient amounts to enable the be declared or paid or set apart general partner to transfer funds for payment by the AIMCO Operating to AIMCO and enable AIMCO to pay Partnership and no other stockholder dividends that will (i) distribution of cash or other prop- satisfy the requirements for erty may be declared or made, qualifying as a REIT under the Code directly or indirectly, by the and the Treasury Regulations and AIMCO Operating Partnership with (ii) avoid any Federal income or respect to any Junior Units, nor excise tax liability of AIMCO. See shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fractional unit and on any securities exchange. The transferability of the OP Units. if such assignment is less than all Preferred OP Units are subject to Until the expiration of one year of the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such five units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignments taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for Federal tax ferred OP Units to any transferee the satisfaction of certain purposes and the transferor re- without the consent of the general conditions specified in the AIMCO ceives a ruling from the IRS to partner, which consent may be Operating Partnership Agreement, such effect and (4) the assignor withheld in its sole and absolute including the general partner's and assignee have complied with discretion. After the expiration of right of first refusal. See such other conditions as determined one year, such holders of Preferred "Description of OP Units -- by the general partner to comply OP Units has the right to transfer Transfers and Withdrawals" in the with any state securities all or any portion of its Preferred accompanying Prospectus. regulatory authority. Such OP Units to any person, subject to transferee may be substituted as a the satisfaction of certain After the first anniversary of limited partner if: (1) the general conditions specified in the AIMCO becoming a holder of Common OP partner consents in writing, which Operating Partnership Agreement, Units, an OP Unitholder has the consent may be granted or denied in including the general partner's right, subject to the terms and the sole discretion of the general right of first refusal. conditions of the AIMCO Operating partner, (2) the transferor elects Partnership Agreement, to require to become a substitute limited After a one-year holding period, a the AIMCO Operating Partnership to partner by delivering to the holder may redeem Preferred OP redeem all or a portion of the general partner a written notice, Units and receive in exchange Common OP Units held by such party executed and acknowledged by the therefor, at the AIMCO Operating in exchange for a cash amount based assignor and assignee of such Partnership's option, (i) subject on the value of shares of Class A election, (3) the assignee executes to the terms of any Senior Units, Common Stock. See "Description of and acknowledges such other cash in an amount equal to the OP Units -- Redemption Rights" in instruments that the general Liquidation Preference of the the accompanying Prospectus. Upon partner may require including an Preferred OP Units tendered for receipt of a notice of redemption, adoption of your partnership's redemption, (ii) a number of shares the AIMCO Operating Partnership agreement of limited partnership, of Class I Cumulative Preferred may, in its sole and absolute and (4) the assignee pays the Stock of AIMCO that pay an discretion but subject to the partnership for its expenses aggregate amount of dividends yield restrictions on the owner- incurred in the transaction.
S-66 1086 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS equivalent to the distributions on ship of Class A Common Stock the Preferred OP Units tendered for imposed under AIMCO's charter and redemption and are part of a class the transfer restrictions and other or series of preferred stock that limitations thereof, elect to cause is then listed on the New York AIMCO to acquire some or all of the Stock Exchange or another national tendered Common OP Units in securities exchange, or (iii) a exchange for Class A Common Stock, number of shares of Class A Common based on an exchange ratio of one Stock of AIMCO that is equal in share of Class A Common Stock for Value to the Liquidation Preference each Common OP Unit, subject to of the Preferred OP Units tendered adjustment as provided in the AIMCO for redemption. The Preferred OP Operating Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1087 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1088 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1089 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1090 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1091 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1092 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1093 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1094 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1095 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 7.5% of the Net Cash from Operations for each year for its services as general partner of your partnership so long as the limited partners receive 5% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner received partnership management fees and reimbursements totaling $148,000 in 1996, $145,000 in 1997 and $65,000 for the first six months of 1998. The property manager received management fees of $346,000 in 1996, $352,000 in 1997 and $184,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 1096 YOUR PARTNERSHIP GENERAL Angeles Partners XI was organized on February 14, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following properties: Fox Run I and II Apartments, a 776-unit complex in Plainsboro, New Jersey. Your partnership also has a 41.1% investment in the Princeton Meadows Golf Course Joint Venture in Plainsboro, New Jersey. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 80 units of limited partnership interest issued and outstanding, which were held of record by 3,988 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all S-77 1097 considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933, as amended (other than for the payment by your partnership of expenses incurred or paid by the general partner in the successful defense of any action, suit or proceeding) is asserted by the general partner in connection with the units, your partnership will, unless in the opinion of its counsel, the matter is settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended and will agree to be governed by the court's final adjudication of such issue. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS The following table sets forth the distributions per unit in the periods indicated below. The original cost per unit was $1,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.61 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 0.00
S-78 1098 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 0.2% interest in your partnership, including 80 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $198,631 1995........................................................ 154,159 1996........................................................ 148,000 1997........................................................ 145,000 1998 (through June 30)...................................... 65,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $506,180 1995........................................................ 368,605 1996........................................................ 346,000 1997........................................................ 352,000 1998 (through June 30)...................................... 184,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-79 1099 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Partners XI appearing in Angeles Partners XI Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 1100 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1101 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1102 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1103 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1104
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1105
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1106
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1107
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1108 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1109 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS XII IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $948.00 per unit and a separate affiliate estimated the net liquidation value of your units to be $911.06 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in nine apartment properties, one commercial complex and a joint venture owning a golf course to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1110 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners XII............................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78
i 1111
PAGE ---- Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1112 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners XII. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1113 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1114 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid any distributions in the last three fiscal years. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in nine apartment properties, one commercial complex and a joint venture owning a golf course to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1115 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $30.00 per unit to $535.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $948.00 per unit and a separate affiliate of your general partner estimated the net liquidation value of your units to be $911.06 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1116 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that, if you do not tender all of your units, you continue to hold a minimum of five units subsequent to any transfer, except in limited circumstances. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1117 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1118 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1119 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $948.00 per unit and a separate affiliate of your general partner estimated the net liquidation value of your units to be $911.06 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $30.00 per unit to $535.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 1120 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages nine apartment properties and one commercial complex and has a minority interest in a joint venture owning a golf course to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 1121 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 1122 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 1123 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 22.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 1124 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1125 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1126 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1127 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1128 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $30.00 to $535.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1129 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 7.5% of the Net Cash from Operations for each year for its services as general partner of your partnership so long as the limited partners receive 5% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $219,000 for the first six months of 1998. The property manager received management fees of $515,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Partners XII was organized on May 26, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital appreciation and cash S-18 1130 distributions to its limited partners. Your partnership's investment portfolio currently consists of the following nine residential apartment complexes, one commercial complex and a real estate joint venture: Briarwood Apartments, a 73-unit complex in Cedar Rapids, Iowa; Chambers Ridge Apartments, a 324-unit complex in Harrisburg, Pennsylvania; Gateway Gardens Apartments, a 328-unit complex in Cedar Rapids, Iowa; Hunters Glen Apartments-IV, a 264-unit complex in Plainsboro, New Jersey; Hunters Glen Apartments-V, a 304-unit complex in Plainsboro, New Jersey; Hunters Glen Apartments-VI, a 328-unit complex in Plainsboro, New Jersey; Pickwick Place Apartments, a 336-unit complex in Indianapolis, Indiana; Southpointe Apartments, a 499-unit complex in Bedford Heights, Ohio; Twin Lake Towers Apartments, a 399-unit complex in Westmont, Illinois; Cooper Point Plaza, a 103,473 square-foot retail center in Olympia, Washington; and a 44.5% interest in Princeton Golf Course Joint Venture, which owns Princeton Meadows Golf Course in Princeton, New Jersey. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 44,718 units of limited partnership interest issued and outstanding, which were held of record by 3,971 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1131 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1132
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1133 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1134
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1135 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1136 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS XII The summary financial information of Angeles Partners XII for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners XII for the years ended December 31, 1997, 1996 and 1995 based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS XII
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 10,870 $ 10,457 $ 21,291 $ 21,321 $ 20,935 Net Income (Loss)........................................... (516) (1,106) (2,025) (1,802) (1,496) Net Income (Loss) per limited partnership unit.............. (11.43) (24.49) (44.83) (39.85) (33.09) Distributions per limited partnership unit.................. -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $ 38,275 $ 41,510 $ 39,990 $ 43,354 $ 46,539 Total Assets................................................ 49,923 52,150 51,365 53,430 55,882 Notes Payable............................................... 71,736 72,425 72,105 72,756 73,372 Partners' Capital (Deficit)................................. (25,131) (23,696) (24,615) (22,590) (20,788)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS XII ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 1137 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $30.00 per unit to $535.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $948.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $911.06 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1138 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 1139 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages nine apartment properties and one commercial complex and has a minority interest in a joint venture owning a golf course. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. There have been no distributions with respect to your units in the past three fiscal years. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 1140 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 22.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 1141 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In April, 1998, Broad River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 8,002 units (representing approximately 17.9% of the number outstanding) at a cash purchase price of $500.00 per unit on May 20, 1998. In August, 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, together with Insignia Properties, L.P., Insignia Properties Trust, and Insignia Financial Group, Inc., commenced a tender offer for $600.00 per unit and purchased shares in , 1998. In August, 1998, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $360.00 per unit and purchased shares in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 1142 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 1143 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1144 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1145 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that, if you do not tender all of your units, you continue to hold a minimum of five units subsequent to any transfer, except in limited circumstances. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1146 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1147 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1148 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1149 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1150 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1151 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1152 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1153 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1,259 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 2.82% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1154 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1155 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1156 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1157 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1158 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1159 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Briarwood Apartments.................. $ % $ Chambers Ridge Apartments............. Cooper Point Plaza.................... Gateway Gardens Apartments............ Hunters Glen Apartments-IV............ Hunters Glen Apartments-V............. Hunters Glen Apartments-VI............ Pickwick Plaza Apartments............. Southpointe Apartments................ Twin Lake Towers Apartments........... Princeton Meadows Golf Course (44.5% in interest)........................
S-48 1160 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. S-49 1161 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange S-50 1162 for each of your partnership's units. There have been no distributions with respect to your units in the past three fiscal years. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions S-51 1163 analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $30.00 to $535.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 12,102 units (representing less than 27.07% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES PARTNERS XII REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $175.00 $535.00 (c) (c) Second Quarter.................................. 175.00 450.00 380.00 450.00 First Quarter................................... 30.00 403.12 340.00 425.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 110.00 410.00 368.00 379.00 Third Quarter................................... 65.10 406.10 365.00 406.00 Second Quarter.................................. 125.00 421.00 360.00 406.00 First Quarter................................... 35.00 420.00 350.00 425.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 125.00 450.00 360.00 410.00 Third Quarter................................... 65.00 397.17 337.00 396.00 Second Quarter.................................. 110.00 395.95 -- -- First Quarter................................... 110.00 392.00 -- --
S-52 1164 - --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Southpointe Apartments was appraised in September, 1995 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, S-53 1165 and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $9,750,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. An affiliate of your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in August, 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $948.00. Your general partner also prepares annual estimates of your partnership's net asset value per unit. Your general partner's three most recent estimates of your partnership's net asset value per unit were $825.00, $582.00 and $613.00 as of December 31, 1997, 1996 and 1995, respectively. Your general partner estimates net asset value based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partners of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership and the golf course joint venture. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership and the golf course joint venture. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $766.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partners of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's and the golf course joint venture's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership and the golf course joint venture. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 1166 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 1167 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 1168 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 1169 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 1170 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests in conduct any business that may be lawfully conducted by residential, commercial and industrial real properties, a limited partnership organized pursuant to the either directly or indirectly including through Delaware Revised Uniform Limited Partnership Act (as investments in partnerships or joint ventures with amended from time to time, or any successor to such others. Subject to restrictions contained in your statute) (the "Delaware Limited Partnership Act"), partnership's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-59 1171 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner may make offerings of units upon such contributions as may be established by the general terms and conditions and in such amounts as the general partner in its sole discretion. The net capital partner in its sole discretion deems reasonable, so contribution need not be equal for all OP Unitholders. long as such terms and conditions are no more favorable No action or consent by the OP Unitholders is required than those offered to the limited partners who in connection with the admission of any additional OP purchased their units under the terms and conditions of Unitholder. See "Description of OP Units -- Management the first offering. The capital contribution need not by the AIMCO GP" in the accompanying Prospectus. be equal for all limited partners and no action or Subject to Delaware law, any additional partnership consent is required in connection with the admission of interests may be issued in one or more classes, or one any additional limited partners. Your partnership may or more series of any of such classes, with such not issue units in exchange for property. designations, preferences and relative, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. The general partner may entities in which it is or thereby becomes a not purchase or lease any real property or any loan or participant upon such terms and subject to such lease from your partnership or sell or lease any real conditions consistent with the AIMCO Operating Part- property or any loan or lease to your partnership nership Agreement and applicable law as the general either directly or through an affiliate. However, the partner, in its sole and absolute discretion, believes general partner or an affiliate may purchase property to be advisable. Except as expressly permitted by the in its own name and temporarily hold title thereto for AIMCO Operating Partnership Agreement, neither the the purpose of facilitating its acquisition or general partner nor any of its affiliates may sell, financing by your partnership if (1) the property is transfer or convey any property to the AIMCO Operating purchased by your partnership for a price no greater Partnership, directly or indirectly, except pursuant to than the cost of the property to the general partner or transactions that are determined by the general partner its affiliate, (2) no difference exists in the interest in good faith to be fair and reasonable. rates of the loans secured by the property at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may not make loans to the general partner or its affiliates but the general partner may lend money to your partnership if such loan is made at interest rates and charges not in excess of the rates and charges which would be charged by unrelated banks in a competitive position or in any event in excess of the prime interest rate which is charged from time to time by Bank of America National Trust and Savings Association, Los Angeles, California, on ninety-day unsecured loans to responsible and substantial borrowers. Unless certain conditions are met, the general partner may not make a permanent loan to your partnership nor may your partnership finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its
S-60 1172 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money to secure such debt by mortgage, pledge restrictions on borrowings, and the general partner has or other lien on any of the assets of your partnership. full power and authority to borrow money on behalf of The general partner of your partnership may not, in the AIMCO Operating Partnership. The AIMCO Operating connection with the acquisition of assets, subject any Partnership has credit agreements that restrict, among asset of your partnership to one or more mortgages, other things, its ability to incur indebtedness. See deeds of trust or other security interest, so that the "Risk Factors -- Risks of Significant Indebtedness" in aggregate amount of indebtedness secured by mortgages, the accompanying Prospectus. deeds of trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. Your partnership may not issue debt securities to the public. The general partner may not acquire any real property which, at the date of the acquisition, is subject to indebtedness secured by a mortgage, deed of trust or other security interest on the real property having an unpaid principal balance immediately after the acquisition equal to less than 40% of the purchase price of the real property paid by your partnership. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters described under rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without limited partners under California Units -- Voting Rights" below. The general partner may law. Limited partners have no right to participate in not be removed by the OP Unitholders with or without the management or conduct of your partnership's cause. business or affairs nor any power or authority to act for or on behalf of your partnership in any respect In addition to the powers granted a general partner of whatsoever. 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
S-61 1173 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In the event that a claim for indemnification settlements and other amounts incurred in connection against liabilities arising under the Securities Act of with any actions relating to the operations of the 1933, as amended (other than for the payment by your AIMCO Operating Partnership, as set forth in the AIMCO partnership of expenses incurred or paid by the general Operating Partnership Agreement. The Delaware Limited partner in the successful defense of any action, suit Partnership Act provides that subject to the standards or proceeding) is asserted by the general partner in and restrictions, if any, set forth in its partnership connection with the units, your partnership will, agreement, a limited partnership may, and shall have unless in the opinion of its counsel, the matter is the power to, indemnify and hold harmless any partner settled by controlling precedent, submit to a court of or other person from and against any and all claims and appropriate jurisdiction the question of whether such demands whatsoever. It is the position of the indemnification by it is against public policy as Securities and Exchange Commission that indemnification expressed in the Securities Act of 1933, as amended and of directors and officers for liabilities arising under will agree to be governed by the court's final the Securities Act is against public policy and is adjudication of such issue. unenforceable pursuant to Section 14 of the Securities Act of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner, the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership and such other conditions as are controlling interest in the AIMCO Operating Partner- set forth in your partnership's agreement of limited ship. Additionally, the AIMCO Operating Partnership partnership is satisfied. The general partner may admit Agreement contains restrictions on the ability of OP additional general partners without the consent of the Unitholders to transfer their OP Units. See limited partners. No limited partner may substitute a "Description of OP Units -- Transfers and Withdrawals" transferee of his units in such limited partner's place in the accompanying Prospectus. without the consent of the general partner which may be withheld at the sole discretion of the general partner.
S-62 1174 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership, (3) deletes or adds any provision required the OP Unitholders. The general partner will seek the by any applicable law, (4) reflects any reduction of written consent of the OP Unitholders on the proposed the partners' capital accounts or (5) reflects a change amendment or will call a meeting to vote thereon. See in the name or the location of the principal place of "Description of OP Units -- Amendment of the AIMCO business of your partnership. Your partnership's agree- Operating Partnership Agreement" in the accompanying ment of limited partnership may not be amended to Prospectus. change your partnership to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. Any amendment which diminishes the rights of the general partner may not be made without the consent of the general partner or all of the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual management fee equal to 7.5% of the Net Cash its services as general partner of the AIMCO Operating from Operations for each year for its services as Partnership. However, the general partner is entitled general partner of your partnership so long as the to payments, allocations and distributions in its limited partners receive 5% per annum on their capital capacity as general partner of the AIMCO Operating investment and may also receive reimbursement for Partnership. In addition, the AIMCO Operating Part- expenses incurred in such capacity. nership 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.
S-63 1175 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of its capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner may delegate any or all of its powers, rights Operating Partnership Agreement expressly limits the and obligations under your partnership's agreement of liability of the general partner by providing that the limited partners and in furtherance of any such general partner, and its officers and directors will delegation may appoint, employ or contract with any not be liable or accountable in damages to the AIMCO person for the account of your partnership for the Operating Partnership, the limited partners or transaction of the business of your partnership, which assignees for errors in judgment or mistakes of fact or person may, under the supervision of the general law or of any act or omission if the general partner or partner, perform such acts or services for your such director or officer acted in good faith. See partnership as the general partnership may approve. The "Description of OP Units -- Fiduciary Responsibilities" general partner and its affiliates may acquire real in the accompanying Prospectus. properties for their own account, or engage in the acquisition, development, operation or management of real estate on behalf of other entities, including business ventures similar to, related to or in direct or indirect competition with any business of your partnership. Neither your partnership nor any other partner will have any right in or to such other business ventures or the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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.
S-64 1176 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners Units will have the same such as certain amend-
S-65 1177 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS may amend your partnership's voting rights as holders of the ments and termination of the AIMCO agreement of limited partnership, Common OP Units. See "Description Operating Partnership Agreement and subject to certain exceptions; of OP Units" in the accompanying certain transactions such as the terminate your partnership; remove Prospectus. So long as any institution of bankruptcy a general partner; approve the Preferred OP Units are outstand- proceedings, an assignment for the admission of a substituted general ing, in addition to any other vote benefit of creditors and certain partner and approve or disapprove or consent of partners required by transfers by the general partner of the single sale or a series of law or by the AIMCO Operating its interest in the AIMCO Operating sales which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. In such event, your of the Partnership Unit Desig- acquisition, sale, transfer, partnership may be continued by the nation of the Preferred OP Units exchange or other disposition of remaining general partner if, in that materially and adversely any assets of the AIMCO Operating the opinion of counsel to your affects the rights or preferences Partnership (including, but not partnership, such election would of the holders of the Preferred OP limited to, the exercise or grant not jeopardize your partnership's Units. The creation or issuance of of any conversion, option, status as a partnership for tax any class or series of partnership privilege or subscription right or purposes. If no general partner units, including, without any other right available in remains, your partnership may limitation, any partnership units connection with any assets at any continue if, within ninety days of that may have rights senior or time held by the AIMCO Operating the retirement, the limited superior to the Preferred OP Units, Partnership) or the merger, partners holding more than 50% of shall not be deemed to materially consolidation, reorganization or the units elect a substitute adversely affect the rights or other combination of the AIMCO general partner who is willing to preferences of the holders of Operating Partnership with or into continue your partnership. Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to during such quarter to the general fixed in amount and depend upon the partner,
S-66 1178 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS operating results and net sales or the lower of (i) % plus the the special limited partner and the refinancing proceeds available from annual interest rate then holders of Common OP Units on the the disposition of your applicable to U.S. Treasury notes record date established by the partnership's assets. with a maturity of five years, and general partner with respect to (ii) the annual dividend rate on such quarter, in accordance with the most recently issued AIMCO their respective interests in the non-convertible preferred stock AIMCO Operating Partnership on such which ranks on a parity with its record date. Holders of any other Class H Cumulative Preferred Stock. Preferred OP Units issued in the Such distributions will be future may have priority over the cumulative from the date of origi- general partner, the special nal issue. Holders of Preferred OP limited partner and holders of Units will not be entitled to Common OP Units with respect to receive any distributions in excess distributions of Available Cash, of cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred is not with Preferred OP Units are not listed nership Agreement restricts the respect to any fractional unit and on any securities exchange. The transferability of the OP Units. if such assignment is less than all Preferred OP Units are subject to Until the expiration of one year of the units held by the assignor, restrictions on transfer as set from the date on which an OP after the transfer, the assignor forth in the AIMCO Operating Unitholder acquired OP Units, and assignee each hold at least Partnership Agreement. subject to certain exceptions, such five units, except in certain OP Unitholder may not transfer all circumstances, (2) the assignee and Pursuant to the AIMCO Operating or any portion of its OP Units to the assignor execute, acknowledge Partnership Agreement, until the any transferee without the consent and deliver to the general partner expiration of one year from the of the general partner, which a written assignment, (3) the date on which a holder of Preferred consent may be withheld in its sole transfer, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignments taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any your partnership for Fed-
S-67 1179 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS eral tax purposes and the ferred OP Units to any transferee person, subject to the satisfaction transferor receives a ruling from without the consent of the general of certain conditions specified in the IRS to such effect and (4) the partner, which consent may be the AIMCO Operating Partnership assignor and assignee have complied withheld in its sole and absolute Agreement, including the general with such other conditions as discretion. After the expiration of partner's right of first refusal. determined by the general partner one year, such holders of Preferred See "Description of OP Units -- to comply with any state securities OP Units has the right to transfer Transfers and Withdrawals" in the regulatory authority. Such all or any portion of its Preferred accompanying Prospectus. transferee may be substituted as a OP Units to any person, subject to limited partner if: (1) the general the satisfaction of certain After the first anniversary of partner consents in writing, which conditions specified in the AIMCO becoming a holder of Common OP consent may be granted or denied in Operating Partnership Agreement, Units, an OP Unitholder has the the sole discretion of the general including the general partner's right, subject to the terms and partner, (2) the transferor elects right of first refusal. conditions of the AIMCO Operating to become a substitute limited Partnership Agreement, to require partner by delivering to the After a one-year holding period, a the AIMCO Operating Partnership to general partner a written notice, holder may redeem Preferred OP redeem all or a portion of the executed and acknowledged by the Units and receive in exchange Common OP Units held by such party assignor and assignee of such therefor, at the AIMCO Operating in exchange for a cash amount based election, (3) the assignee executes Partnership's option, (i) subject on the value of shares of Class A and acknowledges such other to the terms of any Senior Units, Common Stock. See "Description of instruments that the general cash in an amount equal to the OP Units -- Redemption Rights" in partner may require including an Liquidation Preference of the the accompanying Prospectus. Upon adoption of your partnership's Preferred OP Units tendered for receipt of a notice of redemption, agreement of limited partnership, redemption, (ii) a number of shares the AIMCO Operating Partnership and (4) the assignee pays the of Class I Cumulative Preferred may, in its sole and absolute partnership for its expenses Stock of AIMCO that pay an discretion but subject to the incurred in the transaction. aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 1180 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 1181 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 1182 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 1183 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 1184 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 1185 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 1186 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 1187 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 1188 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 7.5% of the Net Cash from Operations for each year for its services as general partner of your partnership so long as the limited partners receive 5% per annum on their capital investment and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $453,000 in 1996, $431,000 in 1997 and $219,000 for the first six months of 1998. The property manager received management fees of $1,033,000 in 1996, $1,029,000 in 1997 and $515,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 1189 YOUR PARTNERSHIP GENERAL Angeles Partners XII was organized on May 26, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following nine residential apartment complexes, one commercial complex and a real estate joint venture: Briarwood Apartments, a 73-unit complex in Cedar Rapids, Iowa; Chambers Ridge Apartments, a 324-unit complex in Harrisburg, Pennsylvania; Gateway Gardens Apartments, a 328-unit complex in Cedar Rapids, Iowa; Hunters Glen Apartments-IV, a 264-unit complex in Plainsboro, New Jersey; Hunters Glen Apartments-V, a 304-unit complex in Plainsboro, New Jersey; Hunters Glen Apartments-VI, a 328-unit complex in Plainsboro, New Jersey; Pickwick Place Apartments, a 336-unit complex in Indianapolis, Indiana; Southpointe Apartments, a 499-unit complex in Bedford Heights, Ohio; Twin Lake Towers Apartments, a 399-unit complex in Westmont, Illinois; Cooper Point Plaza, a 103,473 square-foot retail center in Olympia, Washington; and a 44.5% interest in Princeton Golf Course Joint Venture, which owns Princeton Meadows Golf Course in Princeton, New Jersey. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 44,718 units issued and outstanding, which were held of record by 3,971 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated February 14, 1984, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth or sixth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general S-78 1190 partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In the event that a claim for indemnification against liabilities arising under the Securities Act of 1933, as amended (other than for the payment by your partnership of expenses incurred or paid by the general partner in the successful defense of any action, suit or proceeding), is asserted by the general partner in connection with the units, your partnership will, unless in the opinion of its counsel the matter is settled by controlling precedent, submit to a court of appropriate jurisdiction the question of S-79 1191 whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will agree to be governed by the court's final adjudication of such issue. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS Your partnership has not paid any distributions in the past three years. The original cost per unit was $1,000.00. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 22.2% interest in your partnership, including 9,806 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $475,998 1995........................................................ 443,417 1996........................................................ 453,000 1997........................................................ 431,000 1998 (through June 30)...................................... 219,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---------- 1994........................................................ $ 989,076 1995........................................................ 1,031,693 1996........................................................ 1,033,000 1997........................................................ 1,029,000 1998 (through June 30)...................................... 515,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 1192 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 1193 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Partners XII appearing in Angeles Partners XII's Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 1194 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1195 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1196 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1197 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1198
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1199
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1200
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1201
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1202 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1203 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ANGELES PARTNERS XIV IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of March 31, 1998, your general partner estimated the net asset value of your units to be $0.00 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties and one commercial property to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1204 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Angeles Partners XIV............................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-52 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-54 Assumptions, Limitations and Qualifications............................. S-54 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75 YOUR PARTNERSHIP............................... S-76 General...................................... S-76
i 1205
PAGE ---- Additional Information Concerning Your Partnership................................ S-76 Originally Anticipated Term of the Partnership................................ S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1206 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Angeles Partners XIV. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Angeles Realty Corporation II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1207 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1208 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid any distributions for the past three years. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two apartment properties and one commercial property to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1209 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $35.00 per unit from January 1, 1997 to September 30, 1998. As of March 31, 1998, your general partner estimated the net asset value of your units to be $0.00 per unit. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1210 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that, if you tender less than all of your units, after the tender you must hold a minimum of five units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1211 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1212 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1213 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of March 31, 1998, your general partner estimated the net asset value of your units to be $0.00 per unit. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $35.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 1214 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two apartment properties and one commercial property to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 1215 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 1216 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 1217 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 0.08% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 1218 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership continues to incur recurring operating losses and suffers from inadequate liquidity. It is in default on non-recourse and unsecured indebtedness due to nonpayment of interest and principal when due. These conditions raise substantial doubt about your partnership's ability to continue as a going concern. In addition, your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). S-13 1219 - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 1220 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 1221 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 1222 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $1.00 to $35.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 1223 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees for its services as general partner but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $76,000 for the first six months of 1998. The property manager received management fees of $132,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Angeles Partners XIV was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes and one commercial property: Waterford Square Apartments, a 487-unit residential apartment complex in Huntsville, Alabama; Fox Crest Apartments, a 245-unit residential apartment complex in Waukegan, Illinois; and Dayton Industrial Complex, an approximately 80,000 square-foot industrial complex in Dayton, Ohio. We plan to sell Dayton Industrial Complex as of October 31, 1998 for forgiveness of debt and reimbursement of legal fees. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. Insignia S-18 1224 Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the apartment properties owned by your partnership. As of December 31, 1997, there were 43,887 units of limited partnership interest issued and outstanding, which were held of record by 4,408 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1225 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1226
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1227 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1228
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1229 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1230 SUMMARY FINANCIAL INFORMATION OF ANGELES PARTNERS XIV The summary financial information of Angeles Partners XIV for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Angeles Partners XIV for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. ANGELES PARTNERS XIV
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------- -------------------------------- 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues............................................. $ 2,740 $ 2,813 $ 5,642 $ 7,186 $ 8,129 Net Income (Loss).......................................... 6,492 (1,655) (3,974) (4,542) (3,293) Net Income (Loss) per limited partnership unit............. 146.44 (37.32) (89.62) (101.87) (73.87) Distributions per limited partnership unit................. -- -- -- -- --
JUNE 30, DECEMBER 31, -------------------- -------------------------------- 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation............... $ 11,882 $ 16,637 $ 15,524 $ 17,113 $ 25,964 Total Assets............................................... 13,699 18,535 17,286 18,661 27,868 Notes Payable.............................................. 34,081 44,028 44,194 43,825 47,442 Partners' Capital (Deficit)................................ (27,015) (31,188) (33,507) (29,533) (24,991)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ANGELES PARTNERS XIV ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 1231 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $35.00 per unit from January 1, 1997 to September 30, 1998. As of March 31, 1998, your general partner estimated the net asset value of your units to be $0.00 per unit. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect S-26 1232 to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two apartment properties and one commercial property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared S-27 1233 to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. There have been no distributions with respect to your units for the past three years. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 1234 RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P., which manages the apartment properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.08% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 1235 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 1236 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 1237 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 1238 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that, if you tender less than all of your units, after the tender you must hold a minimum of five units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 1239 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 1240 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 1241 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 1242 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 1243 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 1244 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 1245 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 1246 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 15 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 0.03% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 1247 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 1248 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 1249 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 1250 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 1251 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 1252 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Waterford Square Apartments $ % $ Fox Crest Apartments Dayton Industrial Complex
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 1253 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 1254 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. There have been no distributions with respect to your units in the past three years. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment S-49 1255 properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $1.00 to $35.00 Estimated liquidation proceeds............................ $
S-50 1256 Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 131 units (representing approximately .29% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. ANGELES PARTNERS XIV REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. -- -- Second Quarter............................................ $ 1.00 $ 4.25 First Quarter............................................. 1.00 3.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 35.00 35.00 Third Quarter............................................. -- -- Second Quarter............................................ -- -- First Quarter............................................. 20.00 20.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ -- -- Third Quarter............................................. 0.01 0.01 Second Quarter............................................ -- -- First Quarter............................................. 1.00 5.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant S-51 1257 information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuation: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with your partnership's 1998 First Quarter Report. That estimate of your partnership's net asset value per unit as of March 31, 1998 was $0.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. S-52 1258 We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also S-53 1259 performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated S-54 1260 to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-55 1261 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 1262 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire fee, The purpose of the AIMCO Operating Partnership is to long-term leasehold, equity or other interests in conduct any business that may be lawfully conducted by residential, commercial and industrial real properties, a limited partnership organized pursuant to the either directly or indirectly including through Delaware Revised Uniform Limited Partnership Act (as investments in partnerships or joint ventures with amended from time to time, or any successor to such others. Subject to restrictions contained in your statute) (the "Delaware Limited Partnership Act"), partnership's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-57 1263 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to selected persons time to the limited partners and to other persons, and who fulfill the requirements set forth in your to admit such other persons as additional limited partnership's agreement of limited partnership. The partners, on terms and conditions and for such capital general partner may make offerings of units upon such contributions as may be established by the general terms and conditions and in such amounts as the general partner in its sole discretion. The net capital partner in its sole discretion deems reasonable, so contribution need not be equal for all OP Unitholders. long as such terms and conditions are no more favorable No action or consent by the OP Unitholders is required than those offer to the limited partners who purchased in connection with the admission of any additional OP their units under the terms and conditions of the first Unitholder. See "Description of OP Units -- Management offering. The capital contribution need not be equal by the AIMCO GP" in the accompanying Prospectus. for all limited partners and no action or consent is Subject to Delaware law, any additional partnership required in connection with the admission of any interests may be issued in one or more classes, or one additional limited partners. Your partnership may not or more series of any of such classes, with such issue units in exchange for property. designations, preferences and relative, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not enter into any funds or other assets to its subsidiaries or other insurance or other transactions with the general persons in which it has an equity investment, and such partner or any of its affiliates, except in connec- persons may borrow funds from the AIMCO Operating tion with the performance of property management Partnership, on terms and conditions established in the services, real estate brokerage services, services as sole and absolute discretion of the general partner. To agent for the sale of units and as otherwise the extent consistent with the business purpose of the specifically permitted by your partnership's agreement AIMCO Operating Partnership and the permitted of limited partnership. The terms of any such employ- activities of the general partner, the AIMCO Operating ment will allow your partnership to terminate such Partnership may transfer assets to joint ventures, employment, with or without cause, and without penalty limited liability companies, partnerships, to your partnership, upon no greater than sixty days corporations, business trusts or other business notice to the employed party. Except in limited entities in which it is or thereby becomes a circumstances, the general partner may not purchase or participant upon such terms and subject to such lease any real property or acquire any loan or lease conditions consistent with the AIMCO Operating Part- from your partnership or sell or lease any real nership Agreement and applicable law as the general property or any loan or lease to your partnership partner, in its sole and absolute discretion, believes either directly or through an affiliate. However, the to be advisable. Except as expressly permitted by the general partner or an affiliate may purchase property AIMCO Operating Partnership Agreement, neither the in its own name and temporarily hold title thereto for general partner nor any of its affiliates may sell, the purpose of facilitating its acquisition or transfer or convey any property to the AIMCO Operating financing by your partnership if (1) the property is Partnership, directly or indirectly, except pursuant to purchased by your partnership for a price no greater transactions that are determined by the general partner than the cost of the property to the general partner or in good faith to be fair and reasonable. its affiliate, (2) no difference exists in the interest rates of the loans secured by the property at the time acquired by the general partner or its affiliates and at the time acquired by your partnership and (3) neither the general partner nor its affiliates receive any economic advantage by reason of holding or having held title to the property. Your partnership may also lease property to a partnership sponsored by the general partner or its affiliates so long as the terms of the lease are comparable to, or no less favorable to your partnership than those offered to and accepted by unrelated persons for comparable space and contained in a written contract which precisely describes the subject matter thereof and all compensation to be paid, which contract, if not previously disclosed, must be fully and properly disclosed to all partners. Your partnership may also invest in entities affiliated with your general partner if certain conditions are met. Your partnership may not make loans to the general partner or its affiliates but the general partner and its affiliates may lend money to your partnership provided that the interest and other financing
S-58 1264 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP charges on loans to your partnership may not be in excess of amounts paid by the general partner for borrowed funds (provided, however, that such interest rates and charges are not in excess of rates and charges which would be charged by unrelated lending institutions on comparable loans for the same purpose, in the same locality of the property (if such loan is made in connection with a particular property). Such loans may not require a prepayment charge or penalty if such loan is secured by a mortgage or encumbrance of your partnership's property. Unless certain conditions are met, your partnership may not finance the purchase of your partnership's property by use of a "wraparound" or "all-inclusive" note and mortgage or deed of trust under which the general partner or any of its affiliates are the obligee or secured party. Your partnership may not grant to the general partner or its affiliates an exclusive right or an exclusive employ- ment to sell your partnership's property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage, restrictions on borrowings, and the general partner has pledge or other lien on any of the assets of your full power and authority to borrow money on behalf of partnership. The general partner of your partnership the AIMCO Operating Partnership. The AIMCO Operating may not, in connection with the acquisition of assets, Partnership has credit agreements that restrict, among subject any asset of your partnership to one or more other things, its ability to incur indebtedness. See mortgages, deeds of trust or other security interest, "Risk Factors -- Risks of Significant Indebtedness" in so that the aggregate amount of indebtedness secured by the accompanying Prospectus. mortgages, deeds of trust and other security interests to which all partnership assets are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase price of all assets. Your partnership may not issue debt securities to the public. The general partner may not acquire a property subject to or subject a property to financing in which the balloon payments represent 25% or more of the purchase price or secondary financing which represents 10% or more of the purchase price which contains a provision of a balloon payment due and payable prior to the earlier of (1) ten years from the date your partnership acquired the property or (2) two years beyond the estimated holding period for the property, but in no event prior to seven years from the date of acquisition of the property. All financing incurred by your partnership will generally provide for periodic payments in an amount which would be sufficient to self-liquidate the loans over periods of not more than thirty years. The general partner may not acquire any real property which, at the date of the acquisition, is subject to indebtedness secured by a mortgage, deed of trust or other security interest on the real property having an unpaid principal balance immediately after the acquisition equal to less than 50% of the purchase price of the real property paid by your partnership. No creditor who makes a non-recourse loan to your partnership will have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of your partnership, other than as a secured creditor.
S-59 1265 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of and exclusive control over the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and affairs. Subject to the Inc., which is the general partner. No OP Unitholder limitations contained in your partnership's agreement has any right to participate in or exercise control or of limited partnership, the general partner has the management power over the business and affairs of the right, power and authority, on behalf of your AIMCO Operating Partnership. The OP Unitholders have partnership, and in its name, to exercise all of the the right to vote on certain matters described under rights, powers and authority of a partner of a "Comparison of Ownership of Your Units and AIMCO OP partnership without limited partners under California Units -- Voting Rights" below. The general partner may law. Limited partners have no right to participate in not be removed by the OP Unitholders with or without the management or conduct of your partnership's cause. business or affairs nor any power or authority to act for or on behalf of your partnership in any respect In addition to the powers granted a general partner of whatsoever. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating or any limited partner for any act or any failure to Partnership for losses sustained, liabilities incurred act so long as such act or failure to act was performed or benefits not derived as a result of errors in in a manner determined in good faith to be within the judgment or mistakes of fact or law of any act or scope of the general partner's authority and to be in omission if the general partner acted in good faith. the best interests of your partnership, and so long as The AIMCO Operating Partnership Agreement provides for such party was not guilty of negligence, misconduct or indemnification of AIMCO, or any director or officer of a breach of its fiduciary obligations in such act or AIMCO (in its capacity as the previous general partner failure to act. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act described above. Any such indemnity provided will all losses, claims, damages, liabilities, joint or be paid, from and only to the extent of, partnership several, expenses (including legal fees), fines, assets. In no event, however, will such indemnification settlements and other amounts incurred in connection cover liabilities arising under the state securities with any actions relating to the operations of the laws and the Securities Act of 1933, as amended. AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that
S-60 1266 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Securities and Exchange Commis- sion 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner if such party consents to become a general or without cause. Under the AIMCO Operating Partnership partner, the limited partners holding more than 50% of Agreement, the general partner may, in its sole the outstanding units consent to the admission of the discretion, prevent a transferee of an OP Unit from substitute general partner, the substitute general becoming a substituted limited partner pursuant to the partner executes and acknowledges such instruments as AIMCO Operating Partnership Agreement. The general the general partner deems necessary or advisable, partner may exercise this right of approval to deter, including the adoption of your partnership's agreement delay or hamper attempts by persons to acquire a of limited partnership and such other conditions as are controlling interest in the AIMCO Operating Partner- set forth in your partnership's agreement of limited ship. Additionally, the AIMCO Operating Partnership partnership is satisfied. The general partner may admit Agreement contains restrictions on the ability of OP additional general partners without the consent of the Unitholders to transfer their OP Units. See limited partners. No limited partner may substitute a "Description of OP Units -- Transfers and Withdrawals" transferee of his units in such limited partner's place in the accompanying Prospectus. without the consent of the general partner which may be withheld at the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or its affiliates or surrenders any Agreement, amendments to the AIMCO Operating right or power granted to the general partner or its Partnership Agreement require the consent of the affiliates for the benefit of the limited partner, (2) holders of a majority of the outstanding Common OP cures any ambiguity, corrects or supplements any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision or makes any other provision with respect to the AIMCO Operating Partnership Agreement may be matters or questions arising under your partnership's proposed by the general partner or by holders of a agreement of limited partnership consistent with the Majority in Interest. Following such proposal, the provisions of your partnership's agreement of limited general partner will submit any proposed amendment to partnership, (3) deletes or adds any provision required the OP Unitholders. The general partner will seek the by any applicable law, (4) reflects any reduction of written consent of the OP Unitholders on the proposed the partners' capital accounts, (5) reflects a change amendment or will call a meeting to vote thereon. See in the name or the location of the principal place of "Description of OP Units -- Amendment of the AIMCO business of your partnership and (6) reduces the Operating Partnership Agreement" in the accompanying required minimum investment in your partnership to Prospectus. effect the participation of your partnership in a program designed to facilitate secondary trading of the units. Your partnership's agreement of limited partnership may not be amended to change your partner- ship to a general partnership, extend the term of your partnership, allow the expulsion of the non-managing general partner without the simultaneous expulsion of the managing general partner or change the liability of the general partner or the limited partners. Any amendment which diminishes the rights of the general partner may not be made without the consent of the general partner or all of the limited partners. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
S-61 1267 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Compensation and Fees The general partner of your partnership receives no The general partner does not receive compensation for annual management fee for its services as general its services as general partner of the AIMCO Operating partner but may receive reimbursement for expenses Partnership. However, the general partner is entitled incurred in such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, or obligations of your partnership the AIMCO Operating Partnership's debts and in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner may not possess your partnership agreement, Delaware law generally requires partnership's property or assign rights in specific a general partner of a Delaware limited partnership to properties of your partnership, for other than the adhere to fiduciary duty standards under which it owes exclusive benefit of your partnership. The general its limited partners the highest duties of good faith, partner must diligently and faithfully devote as much fairness and loyalty and which generally prohibit such of its time to the business of your partnership as may general partner from taking any action or engaging in be necessary to properly conduct the affairs of your any transaction as to which it has a conflict of partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement responsibility for the safekeeping and use of all of expressly authorizes the general partner to enter into, your partnership's funds and assets, whether or not on behalf of the AIMCO Operating Partnership, a right they are in its immediate possession or control. The of first opportunity arrangement and other conflict general partner may not employ or permit others to avoidance agreements with various affiliates of the employ such funds or assets in any manner except for AIMCO Operating Partnership and the general partner, on the benefit of your partnership nor commingle funds of such terms as the general partner, in its sole and your partnership with any other person. The general absolute discretion, believes are advisable. The AIMCO partner may delegate any or all of its powers, rights Operating Partnership Agreement expressly limits the and obligations under your partnership's agreement of liability of the general partner by providing that the limited partners and in furtherance of any such general partner, and its officers and directors will delegation may appoint, employ or contract with any not be liable or accountable in damages to the AIMCO person for the account of your partnership for the Operating Partnership, the limited partners or transaction of the business of your partnership, which assignees for errors in judgment or mistakes of fact or person may, under the supervision of the general law or of any act or omission if the general partner or partner, perform such acts or services for your such director or officer acted in good faith. See partnership as the general partnership may approve. The "Description of OP Units -- Fiduciary Responsibilities" general partner and its affiliates may acquire real in the accompanying Prospectus. properties for their own account, or engage in the acquisition, development, operation or management of real estate on behalf of other entities, including business ventures similar to, related to or
S-62 1268 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP in direct or indirect competition with any business of your partnership. Neither your partnership nor any other partner will have any right in or to such other business ventures or the income or profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom gener-
S-63 1269 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner and ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single sale or a series of sales law or by the AIMCO Operating its interest in the AIMCO Operating which are part of single Partnership Agreement, the Partnership or the admission of a transaction of substantially all of affirmative vote or consent of successor general partner. the assets of your partnership. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. In such event, your of the Partnership Unit Desig- acquisition, sale, transfer, partnership may be continued by the nation of the Preferred OP Units exchange or other disposition of remaining general partner if, in that materially and adversely any assets of the AIMCO Operating the opinion of counsel to your affects the rights or preferences Partnership (including, but not partnership, such election would of the holders of the Preferred OP limited to, the exercise or grant not jeopardize your partnership's Units. The creation or issuance of of any conversion, option, status as a partnership for tax any class or series of partnership privilege or subscription right or purposes. If no general partner units, including, without any other right available in remains, your partnership may limitation, any partnership units connection with any assets at any continue if, within ninety days of that may have rights senior or time held by the AIMCO Operating the retirement, the limited superior to the Preferred OP Units, Partnership) or the merger, partners holding more than 50% of shall not be deemed to materially consolidation, reorganization or the units elect a substitute adversely affect the rights or other combination of the AIMCO general partner who is willing to preferences of the holders of Operating Partnership with or into continue your partnership. Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
S-64 1270 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations remaining after provided, however, that at any time portion as the general partner may compensation is paid to the general and from time to time on or after in its sole and absolute discretion partner for its services are to be the fifth anniversary of the issue determine, of Available Cash (as made quarterly to the partners in date of the Preferred OP Units, the defined in the AIMCO Operating proportion to the interests in your AIMCO Operating Partnership may Partnership Agreement) generated by partnership. The distributions adjust the annual distribution rate the AIMCO Operating Partnership payable to the partners are not on the Preferred OP Units to the during such quarter to the general fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited operating results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- interest transferred Preferred OP
S-65 1271 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS is not with respect to any fraction Units are not listed on any nership Agreement restricts the unit and if such assignment is less securities exchange. The Preferred transferability of the OP Units. than all of the units held by the OP Units are subject to Until the expiration of one year assignor, after the transfer, the restrictions on transfer as set from the date on which an OP assignor and assignee each hold at forth in the AIMCO Operating Unitholder acquired OP Units, least five units, except in certain Partnership Agreement. subject to certain exceptions, such circumstances, (2) the assignee and OP Unitholder may not transfer all the assignor execute, acknowledge Pursuant to the AIMCO Operating or any portion of its OP Units to and deliver to the general partner Partnership Agreement, until the any transferee without the consent a written assignment, (3) the expiration of one year from the of the general partner, which transfer, when added to all other date on which a holder of Preferred consent may be withheld in its sole assignments taking place in the OP Units acquired Preferred OP and absolute discretion. After the preceding 12 months, in the opinion Units, subject to certain expiration of one year, such OP of counsel to your partnership, exceptions, such holder of Unitholder has the right to does not result in termination of Preferred OP Units may not transfer transfer all or any portion of its your partnership for Federal tax all or any portion of its Pre- OP Units to any person, subject to purposes and the transferor ferred OP Units to any transferee the satisfaction of certain receives a ruling from the IRS to without the consent of the general conditions specified in the AIMCO such effect and (4) the assignor partner, which consent may be Operating Partnership Agreement, and assignee have complied with withheld in its sole and absolute including the general partner's such other conditions as deter- discretion. After the expiration of right of first refusal. See mined by the general partner to one year, such holders of Preferred "Description of OP Units -- comply with any state securities OP Units has the right to transfer Transfers and Withdrawals" in the regulatory authority. Such all or any portion of its Preferred accompanying Prospectus. transferee may be substituted as a OP Units to any person, subject to limited partner if: (1) the general the satisfaction of certain After the first anniversary of partner consents in writing, which conditions specified in the AIMCO becoming a holder of Common OP consent may be granted or denied in Operating Partnership Agreement, Units, an OP Unitholder has the the sole discretion of the general including the general partner's right, subject to the terms and partner, (2) the transferor elects right of first refusal. conditions of the AIMCO Operating to become a substitute limited Partnership Agreement, to require partner by delivering to the After a one-year holding period, a the AIMCO Operating Partnership to general partner a written notice, holder may redeem Preferred OP redeem all or a portion of the executed and acknowledged by the Units and receive in exchange Common OP Units held by such party assignor and assignee of such therefor, at the AIMCO Operating in exchange for a cash amount based election, (3) the assignee executes Partnership's option, (i) subject on the value of shares of Class A and acknowledges such other to the terms of any Senior Units, Common Stock. See "Description of instruments that the general cash in an amount equal to the OP Units -- Redemption Rights" in partner may require including an Liquidation Preference of the the accompanying Prospectus. Upon adoption of your partnership's Preferred OP Units tendered for receipt of a notice of redemption, agreement of limited partnership, redemption, (ii) a number of shares the AIMCO Operating Partnership and (4) the assignee pays the of Class I Cumulative Preferred may, in its sole and absolute partnership for its expenses Stock of AIMCO that pay an discretion but subject to the incurred in the transaction. aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-66 1272 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 1273 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 1274 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 1275 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 1276 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 1277 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 1278 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 1279 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 1280 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees for its services as general partner but may receive reimbursement for expenses incurred in such capacity. The general partner received fees and reimbursements totaling $326,000 in 1996, $153,000 in 1997 and $76,000 for the first six months of 1998 in reimbursement for expenses. The property manager received management fees of $234,000 in 1996, $251,000 in 1997 and $132,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-75 1281 YOUR PARTNERSHIP GENERAL Angeles Partners XIV was organized on June 29, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes and one commercial property: Waterford Square Apartments, a 487-unit residential apartment complex in Huntsville, Alabama; Fox Crest Apartments, a 245-unit residential apartment complex in Waukegan, Illinois; and Dayton Industrial Complex, an approximately 80,000 square-foot industrial complex in Dayton, Ohio. We plan to sell Dayton Industrial Complex as of October 31, 1998 for forgiveness of debt and reimbursement of legal fees. The general partner of your partnership is Angeles Realty Corporation II, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the apartment properties owned by your partnership. As of December 31, 1997, there were 43,887 units issued and outstanding, which were held of record by 4,408 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated February 15, 1985 (as amended), by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that it anticipated that properties may be sold five to eight years after acquisition. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, past performance of a property, market studies to ascertain potential rent increases and market value, financial projections, and the impact of the sale on your partnership. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2005, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-76 1282 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any act or any failure to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of (1) reasonable attorney's fees or other expenses incurred in settling any such claim or liability or incurred in any finally adjudicated legal proceeding and (2) expenses incurred in the removal of any liens affecting any property of the parties to be indemnified. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. In no event, however, will such indemnification cover liabilities arising under the state securities laws and the Securities Act of 1933, as amended. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-77 1283 DISTRIBUTIONS Your partnership has not paid any distributions with respect to your units in the past three years. The original cost per unit was $1,000. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 0.08% interest in your partnership, including 29,000 units held by us and the interest held by Angeles Realty Corporation II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $287,244 1995........................................................ 182,534 1996........................................................ 326,000 1997........................................................ 153,000 1998 (through June 30)...................................... 76,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $226,742 1995........................................................ 231,168 1996........................................................ 234,000 1997........................................................ 251,000 1998 (through June 30)...................................... 132,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-78 1284 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-79 1285 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Angeles Partners XIV appearing in Angeles Partners XIV's Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 1286 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1287 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1288 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1289 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1291
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1292
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1293
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1294 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1295 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CENTURY PROPERTIES FUND XVI IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1296 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Century Properties Fund XVI........................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76
i 1297
PAGE ---- YOUR PARTNERSHIP............................... S-77 General...................................... S-77 Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1298 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Century Properties Fund XVI. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Fox Capital Management Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1299 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1300 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership did not pay distributions in 1996 and 1997 and is not expected to make distributions in 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1301 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $8.10 per unit to $75.00 per unit over from January 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real S-4 1302 estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 10 units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. S-5 1303 Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1304 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1305 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $8.10 per unit to $75.00 per unit from January 1, 1997 through September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possible shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because S-8 1306 the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 1307 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 1308 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 1309 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 36.1% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 1310 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1311 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1312 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1313 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1314 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $8.10 to $75.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1315 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 5% of your partnership's cash available for distribution for its services as general partner and may receive reimbursement for expenses generated in such capacity. For the first six months of 1998, the general partner received $55,000 in such fees and reimbursements. The property manager received management fees of $74,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Century Properties Fund XVI was organized on December 30, 1980, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 1316 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: The Landings Apartments, a 200-unit complex in Tampa, Florida and Woods at Inverness Apartments, a 272-unit complex in Houston, Texas. The general partner of your partnership is Fox Capital Management Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of June 30, 1998, there were 130,000 units of limited partnership interest issued and outstanding, which were held of record by 5,534 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1317 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1318
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1319 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1320
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1321 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1322 SUMMARY FINANCIAL INFORMATION OF CENTURY PROPERTIES FUND XVI The summary financial information of Century Properties Fund XVI for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Century Properties Fund XVI for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CENTURY PROPERTIES FUND XVI
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ---------------- -------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues....................................... $1,482 $1,379 $2,867 $2,721 $2,762 Net Income(Loss)..................................... 69 (50) (157) (667) (475)(A) Net Income (Loss) per limited partnership unit....... 0.49 (0.36) (1.12) (4.78) (4.98) Distributions per limited partnership unit........... -- -- -- -- --
JUNE 30, DECEMBER 31, ---------------- -------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation......... $7,516 $7,806 $7,644 $7,827 $8,083 Total Assets......................................... 8,686 8,747 8,787 8,914 9,471 Notes Payable........................................ 7,385 7,457 7,422 7,487 7,550 Partners' Capital (Deficit).......................... 963 1,001 894 1,051 1,718
- --------------- (A) Loss before extraordinary item. COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CENTURY PROPERTIES PARTNERSHIP FUND XVI ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0 $0
S-25 1323 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $8.10 per unit to $75.00 per unit from January 1, 1997 to September 30, 1998. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to S-26 1324 remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 1325 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership did not pay any distribution in 1996 and 1997 and is not expected to make any distributions in 1998. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 1326 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity, which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 36.1% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A S-29 1327 Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers On October 15, 1998, Madison Liquidity Investors 104, LLC ("Madison"), which is not affiliated with us or your general partner, commenced a tender offer to acquire units of your partnership. Madison is seeking to acquire up to 4.9% of the outstanding units for $7 per unit, less transfer fees. The offer expires November 20, 1998. Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In 1994, DeForest Ventures I L.P. commenced a tender offer. In 1995, DeForest Ventures I L.P. commenced another tender offer to purchase 24,031 units for $16.27 per unit as part of the settlement of litigation which arose from the 1994 tender offer. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty S-30 1328 under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one S-31 1329 basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1330 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1331 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 10 units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1332 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1333 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1334 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1335 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1336 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1337 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1338 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1339 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 1340 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-43 1341 compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1342 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1343 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1344 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1345 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includable in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 1346 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET GROSS OPERATING CAPITALIZATION PROPERTY PROPERTY INCOME RATE VALUE -------- ---------------- -------------- -------------- The Land Apartments $ % $ Woods of Inverness Apartments
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 1347 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 1348 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. Your partnership did not make distributions in 1996 and 1997 and is not expected to make distributions in 1998. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 1349 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 1350 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $8.10 to $75.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 670 units (representing less than .52% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CENTURY PROPERTIES FUND XVI REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(A) ----------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 6.25 $70.00 Second Quarter............................................ 6.56 $37.00 First Quarter............................................. 12.00 75.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 6.10 6.10 Third Quarter............................................. 1.00 7.10 Second Quarter............................................ 7.10 26.67 First Quarter............................................. 8.10 58.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 11.17 27.56 Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, S-53 1351 trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Woods of Inverness Apartments was appraised in November 1995 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"). According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $7,400,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 1352 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 1353 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 1354 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 1355 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 1356 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. Form of Organization and Assets Owned YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available For Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2025. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership was formed to invest in, acquire, The purpose of the AIMCO Operating Partnership is to manage and ultimately sell income producing real conduct any business that may be lawfully conducted by properties which are improved or capable of improvement a limited partnership organized pursuant to the or which will be improved within a reasonable period Delaware Revised Uniform Limited Partnership Act (as after acquisition and to make, service and ultimately amended from time to time, or any successor to such dispose of mortgage loans on income producing real statute) (the "Delaware Limited Partnership Act"), properties. Your partnership may enter into ventures, provided that such business is to be conducted in a partnerships, and other business arrangements with manner that permits AIMCO to be qualified as a REIT, respect to real estate deemed prudent by the general unless AIMCO ceases to qualify as a REIT. The AIMCO partner in order to promote the business of the Operating Partnership is authorized to perform any and partnership, subject, however, to the provisions of all acts for the furtherance of the purposes and your partnership's agreement of limited partnership. business of the AIMCO Operating Partnership, provided Investments in limited partnership interests of another that the AIMCO Operating Partnership may not take, or program are prohibited; however, nothing precludes your refrain from taking, any action which, in the judgment partnership from investing in partnerships or joint of its general partner could (i) adversely affect the ventures which own or operate a particular property, ability of AIMCO to continue to qualify as a REIT, (ii) provided that your partnership does not pay duplicate subject AIMCO to certain income and excise taxes, or property management or other fees. Additionally, your (iii) violate any law or regulation of any governmental partnership may engage in any other business or do any body or agency (unless such action, or inaction, is and all acts and things which may be necessary, specifically consented to by AIMCO). Subject to the incidental or convenient to carry on the partnership's foregoing, the AIMCO Operating Partnership may invest purpose and business as specified above. 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.
S-59 1357 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 130,000 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, after July 31, No action or consent by the OP Unitholders is required 1982, the general partner is prohibited from admitting in connection with the admission of any additional OP any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your general partner may not enter into a funds or other assets to its subsidiaries or other contract with your partnership that would bind the persons in which it has an equity investment, and such partnership after the removal of the general partner. persons may borrow funds from the AIMCO Operating Your general partner may not grant itself or an Partnership, on terms and conditions established in the affiliate an exclusive listing for the sale or sole and absolute discretion of the general partner. To partnership assets, purchase or lease real property the extent consistent with the business purpose of the from the partnership, or sell or lease real property in AIMCO Operating Partnership and the permitted which the general partner has an interest to the activities of the general partner, the AIMCO Operating partnership. Your partnership may not lend money to the Partnership may transfer assets to joint ventures, general partner. The general partner may not make limited liability companies, partnerships, long-term secured loans to your partners and, on corporations, business trusts or other business short-term unsecured loans made to your partnership, entities in which it is or thereby becomes a may not receive interest or other financing charges or participant upon such terms and subject to such fees in excess of those amounts which would be charged conditions consistent with the AIMCO Operating Part- by third party financing institutions on comparable nership Agreement and applicable law as the general loans for the same purpose in the same geographic area partner, in its sole and absolute discretion, believes (such interest rate per annum will not exceed 2% above to be advisable. Except as expressly permitted by the the prime rate as charged by Wells Fargo Bank, N.A., of AIMCO Operating Partnership Agreement, neither the San Francisco). Unless certain conditions are general partner nor any of its affiliates may sell, satisfied, the general partner may not issue a transfer or convey any property to the AIMCO Operating wrap-around note or mortgage to your partnership to Partnership, directly or indirectly, except pursuant to finance the purchase of property. The general partner transactions that are determined by the general partner may not receive any insurance brokerage fees for in good faith to be fair and reasonable. issuing any insurance policy to your partnership or any commission for the placement of mortgages or trust deed loans on your partnership's properties. Your general partner may not cause your partnership to enter into any contract with the general partner to construct or develop properties or to render any services in connection with such construction or development. Your general partner may not cause your partnership to enter into any transaction with any other real estate program in which the general partner or any affiliate has an interest.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among your partnership. Your partnership may not incur long- other things, its ability to incur
S-60 1358 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP term secured indebtedness with respect to a property of indebtedness. See "Risk Factors -- Risks of Significant your partnership which exceeds 80% of the then Indebtedness" in the accompanying Prospectus. appraised value of such property.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand provides that a limited partner upon written request, with a statement of the purpose of such demand and at after payment of the reasonable expense of duplication such OP Unitholder's own expense, to obtain a current and for any proper purpose, will be sent a copy of the list of the name and last known business, residence or certificate or certificates of limited partnership mailing address of the general partner and each other containing the most recent listing of limited partner OP Unitholder. names, addresses and capital contributions.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership, subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership. No the right to vote on certain matters described under limited partner has any authority or right to act for "Comparison of Ownership of Your Units and AIMCO OP or bind your partnership or participate in or have any Units -- Voting Rights" below. The general partner may control over your partnership business except as not be removed by the OP Unitholders with or without required by law. 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 Your partnership's agreement of limited partnership Notwithstanding anything to the contrary set forth in does not provide for any limitation on the liability of the AIMCO Operating Partnership Agreement, the general the general partner to your partnership or the limited partner is not liable to the AIMCO Operating partners for any acts performed by it. However, your Partnership for losses sustained, liabilities incurred general partner and any of its affiliates are entitled or benefits not derived as a result of errors in to indemnification for any liability, loss or damage judgment or mistakes of fact or law of any act or incurred by them or by the partnership by reason of any omission if the general partner acted in good faith. act performed or omitted to be performed by them in The AIMCO Operating Partnership Agreement provides for connection with the business of the partnership, indemnification of AIMCO, or any director or officer of including costs and attorney's fees and any amounts AIMCO (in its capacity as the previous general partner expended in the settlements of any claims of liability of the AIMCO Operating Partnership), the general provided that if such liability arises out of any partner, any officer or director of general partner or action or inaction of the general partner such course the AIMCO Operating Partnership and such other persons of conduct did not constitute fraud, negligence, breach as the general partner may designate from and against of fiduciary duty or misconduct by the general partner. all losses, claims, damages, liabilities, joint or All judgments against the partnership and the general several, expenses (including legal fees), fines, partner, wherein the general partner is entitled to settlements and other amounts incurred in connection
S-61 1359 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP indemnification, must first be satisfied from with any actions relating to the operations of the partnership assets before the general partner is AIMCO Operating Partnership, as set forth in the AIMCO responsible for these obligations. Notwithstanding the Operating Partnership Agreement. The Delaware Limited above paragraph, neither the general partner, nor any Partnership Act provides that subject to the standards affiliate of the general partner or the partnership, and restrictions, if any, set forth in its partnership will be indemnified from any liability incurred by them agreement, a limited partnership may, and shall have in connection with (1) any claim or settlement the power to, indemnify and hold harmless any partner involving allegations that the securities laws were or other person from and against any and all claims and violated by the general partner or by any such other demands whatsoever. It is the position of the person unless: (a) the general partner or other persons Securities and Exchange Commission that indemnification or entities seeking indemnification are successful in of directors and officers for liabilities arising under defending such action, and (b) such indemnification is the Securities Act is against public policy and is specifically approved by a court of law which is unenforceable pursuant to Section 14 of the Securities advised as to the current position of any relevant Act of 1933. regulatory agencies regarding indemnification or securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning a majority of the partner may not be removed as general partner of the outstanding units. The general partner may admit an AIMCO Operating Partnership by the OP Unitholders with additional or substitute general partner with the or without cause. Under the AIMCO Operating Partnership consent of limited partners owning a majority of the Agreement, the general partner may, in its sole outstanding units. An additional general partner may discretion, prevent a transferee of an OP Unit from also be admitted without the consent of the limited becoming a substituted limited partner pursuant to the partners if the addition of such person is necessary AIMCO Operating Partnership Agreement. The general for tax purposes, such person has no authority to partner may exercise this right of approval to deter, manage or control your partners, there is no change in delay or hamper attempts by persons to acquire a the identity of the person who has authority to manage controlling interest in the AIMCO Operating Partner- or control your partnership and such admission does not ship. Additionally, the AIMCO Operating Partnership materially adversely affect the limited partners. No Agreement contains restrictions on the ability of OP limited partner may substitute a transferee of his Unitholders to transfer their OP Units. See units in such limited partner's place without the "Description of OP Units -- Transfers and Withdrawals" consent of the general partner which may be withheld at in the accompanying Prospectus. the sole discretion of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners (1) to reflect the addition or the general partner may, without the consent of the OP substitution of limited partners or the reduction of Unitholders, amend the AIMCO Operating Partnership the capital accounts upon the return of capital to Agreement, amendments to the AIMCO Operating partners; (2) to add to the representations, duties or Partnership Agreement require the consent of the obligations of the general partner or affiliates or holders of a majority of the outstanding Common OP surrender any right or power granted to the general Units, excluding AIMCO and certain other limited partner or its affiliates herein, for the benefit of exclusions (a "Majority in Interest"). Amendments to the limited partners; (3) to cure any ambiguity, to the AIMCO Operating Partnership Agreement may be correct or supplement any provision herein which may be proposed by the general partner or by holders of a inconsistent with any other provision herein, or to add Majority in Interest. Following such proposal, the any other provisions with respect to matters or general partner will submit any proposed amendment to questions arising under your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership, and (4) to delete or add any written consent of the OP Unitholders on the proposed provision from or to your partnership's agreement of amendment or will call a meeting to vote thereon. See limited partnership requested to be so deleted or added "Description of OP Units -- Amendment of the AIMCO by any federal or state regulatory agency, which is Operating Partnership Agreement" in the accompanying deemed by such agency to be for the benefit of the Prospectus. limited partners. No amendment may be made without the consent of the affected limited partner if such amendment: (1) converts the limited partner into a general partner, (2) eliminates or decreases the limited liability of the limited partner, (3) alters the interest of a partner in the allocations or distributions from your partnership or (4) affects the status of your partnership as a partnership for Federal income tax purposes. Other amendments to your partnership's agreement of limited partnership must be approved by limited partnership holding a majority of the then outstanding units.
S-62 1360 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Compensation and Fees Your general partner receives 5% of the Cash Available The general partner does not receive compensation for For Distribution for its services as general partner its services as general partner of the AIMCO Operating and may receive reimbursement for expenses incurred in Partnership. However, the general partner is entitled such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations your partnership's agreement of limited partnership. is generally limited to the amount of their invest- After its capital contribution is fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner will, except as otherwise required by limitations on the liability of limited partners for applicable law, be required to make any further capital the obligations of a limited partnership have not been contributions or lend any funds to your partnership. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, partnership funds may not be commingled partnership agreement, Delaware law generally requires with the funds of any other person except as provided a general partner of a Delaware limited partnership to in the partnership agreement, and further, the general adhere to fiduciary duty standards under which it owes partner has fiduciary responsibility for the its limited partners the highest duties of good faith, safekeeping and use of all funds and assets of the fairness and loyalty and which generally prohibit such partnership, whether or not in the immediate possession general partner from taking any action or engaging in or control of the general partner, and the general any transaction as to which it has a conflict of partner may not employ nor permit another to employ interest. The AIMCO Operating Partnership Agreement such funds or assets in any manner except for the expressly authorizes the general partner to enter into, exclusive benefit of the partnership. Your general on behalf of the AIMCO Operating Partnership, a right partner may engage in or possess an interest in any of first opportunity arrangement and other conflict other business or venture of every nature and avoidance agreements with various affiliates of the description, independently or with others, including AIMCO Operating Partnership and the general partner, on the ownership, financing, leasing, operation, such terms as the general partner, in its sole and management, brokerage and development of real property. 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
S-63 1361 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
S-64 1362 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; extend the term of Prospectus. So long as any institution of bankruptcy your partnership, remove or elect a Preferred OP Units are outstand- proceedings, an assignment for the general partner; and approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- retiring. Your partnership may be be necessary for effecting any ship Agreement, the general partner continued by the remaining general amendment of any of the provisions has the power to effect the partner or, if none, the limited of the Partnership Unit Desig- acquisition, sale, transfer, partners may agree to continue your nation of the Preferred OP Units exchange or other disposition of partnership by electing a successor that materially and adversely any assets of the AIMCO Operating general partner upon the vote of affects the rights or preferences Partnership (including, but not the limited partners owning a of the holders of the Preferred OP limited to, the exercise or grant majority of the units within 120 Units. The creation or issuance of of any conversion, option, days after the retirement of the any class or series of partnership privilege or subscription right or general partner. units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations, sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and in its sole and abso-
S-65 1363 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS results and net sales or from time to time on or after the lute discretion determine, of refinancing proceeds available from fifth anniversary of the issue date Available Cash (as defined in the the disposition of your of the Preferred OP Units, the AIMCO Operating Partnership partnership's assets. AIMCO Operating Partnership may Agreement) generated by the AIMCO adjust the annual distribution rate Operating Partnership during such on the Preferred OP Units to the quarter to the general partner, the lower of (i) % plus the annual special limited partner and the interest rate then applicable to holders of Common OP Units on the U.S. Treasury notes with a maturity record date established by the of five years, and (ii) the annual general partner with respect to dividend rate on the most recently such quarter, in accordance with issued AIMCO non-convertible their respective interests in the preferred stock which ranks on a AIMCO Operating Partnership on such parity with its Class H Cumu- record date. Holders of any other lative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign one or There is no public market for the There is no public market for the more whole units by a written Preferred OP Units and the OP Units. The AIMCO Operating Part- instrument in accordance with your Preferred OP Units are not listed nership Agreement restricts the partnership's agreement of limited on any securities exchange. The transferability of the OP Units. partnership. In order for an Preferred OP Units are subject to Until the expiration of one year assignee to become a substituted restrictions on transfer as set from the date on which an OP limited partner the following forth in the AIMCO Operating Unitholder acquired OP Units, conditions must first be satisfied: Partnership Agreement. subject to certain exceptions, such (1) the filing with the partnership OP Unitholder may not transfer all of a written instrument of as- Pursuant to the AIMCO Operating or any portion of its OP Units to signment covering no less than 10 Partnership Agreement, until the any transferee without the consent units; (2) the execution by the expiration of one year from the of the gen- assignor and date on which a holder
S-66 1364 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS assignee of any other documentation of Preferred OP Units acquired eral partner, which consent may be required or requested by the Preferred OP Units, subject to withheld in its sole and absolute general partner; (3) the written certain exceptions, such holder of discretion. After the expiration of consent of the general partner is Preferred OP Units may not transfer one year, such OP Unitholder has obtained; and (4) a transfer fee all or any portion of its Pre- the right to transfer all or any covering all reasonable expenses ferred OP Units to any transferee portion of its OP Units to any connected with such substitution is without the consent of the general person, subject to the satisfaction paid to the partnership. partner, which consent may be of certain conditions specified in withheld in its sole and absolute the AIMCO Operating Partnership discretion. After the expiration of Agreement, including the general one year, such holders of Preferred partner's right of first refusal. OP Units has the right to transfer See "Description of OP Units -- all or any portion of its Preferred Transfers and Withdrawals" in the OP Units to any person, subject to accompanying Prospectus. the satisfaction of certain conditions specified in the AIMCO After the first anniversary of Operating Partnership Agreement, becoming a holder of Common OP including the general partner's Units, an OP Unitholder has the right of first refusal. right, subject to the terms and conditions of the AIMCO Operating After a one-year holding period, a Partnership Agreement, to require holder may redeem Preferred OP the AIMCO Operating Partnership to Units and receive in exchange redeem all or a portion of the therefor, at the AIMCO Operating Common OP Units held by such party Partnership's option, (i) subject in exchange for a cash amount based to the terms of any Senior Units, on the value of shares of Class A cash in an amount equal to the Common Stock. See "Description of Liquidation Preference of the OP Units -- Redemption Rights" in Preferred OP Units tendered for the accompanying Prospectus. Upon redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the AIMCO Operating Partnership Stock of AIMCO that pay an may, in its sole and absolute aggregate amount of dividends yield discretion but subject to the equivalent to the distributions on restrictions on the ownership of the Preferred OP Units tendered for Class A Common Stock imposed under redemption and are part of a class AIMCO's charter and the transfer or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1365 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1366 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1367 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1368 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1369 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1370 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1371 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1372 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1373 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 5% of your partnership's cash available for distribution for its services as general partner and may receive reimbursement for expenses generated in such capacity. The general partner received fees and reimbursements totaling $154,000 in 1996, $135,000 in 1997 and $55,000 for the first six months of 1998. The property manager received management fees of $132,000 in 1996, $142,000 in 1997 and $74,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 1374 YOUR PARTNERSHIP GENERAL Century Properties Fund XVI was organized on December 30, 1980, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: The Landings Apartments, a 200-unit complex in Tampa, Florida; and Woods at Inverness Apartments, a 272-unit complex in Houston, Texas. The general partner of your partnership is Fox Capital Management Corporation, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. NPI-AP Management, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of June 30, 1998, there were 130,000 units issued and outstanding, which were held of record by 5,534 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP In a prospectus dated August 17, 1981, your general partner (which was not then affiliated with us) indicated that your partnership plans to hold its properties for approximately five to seven years since the appreciation in the value of such property and accelerated depreciation is optimized during such time frame. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2025, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each S-77 1375 asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership does not limit the liability of the general partner or its affiliates to your partnership or the limited partners for acts undertaken on behalf your partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Your general partner and any of its affiliates are entitled to indemnification for any liability, loss or damage incurred by them or by the partnership by reason of any act performed or omitted to be performed by them in connection with the business of the partnership, including costs and attorney's fees and any amounts expended in the settlements of any claims of liability provided that if such liability arises out of any action or inaction of the general partner such conduct did not constitute fraud, negligence, breach of fiduciary duty or misconduct by the general partner. All judgments against the partnership and the general partner, wherein the general partner is entitled to indemnification, must first be satisfied from partnership assets before the general partner is responsible for these obligations. Notwithstanding the above paragraph, neither the general partner, nor any affiliate of the general partner or the partnership, will be indemnified from any liability incurred by them in connection with (1) any claim or settlement involving allegations that the securities laws were violated by the general partner or by any such other person unless: (a) the general partner or other persons or entities seeking indemnification are successful in defending such action, and (b) such indemnification is specifically approved by a court of law which is advised as to the current position of any relevant regulatory agencies regarding indemnification for securities law violations; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS Your partnership did not make distributions in 1996 and 1997 and is not expected to make distributions in 1998. The original cost per unit was $500. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 38.5% interest in your partnership, including 47,418.68 units held by us, and the interest held by Fox Capital Management Corporation and Fox Realty Investors, as general partners of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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, S-78 1376 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $147,000 1995........................................................ 182,000 1996........................................................ 154,000 1997........................................................ 135,000 1998 (through June 30)...................................... 55,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $103,000 1995........................................................ 132,000 1996........................................................ 132,000 1997........................................................ 142,000 1998 (through June 30)...................................... 74,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative S-79 1377 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements Century Properties Fund XVI appearing in Century Properties Fund XVI Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 1378 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Century Properties Fund XVI Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Century Properties Fund XVI (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1379 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the A-2 1380 Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1381 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1382
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1383
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1384
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1385
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1386 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1387 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CENTURY PROPERTIES FUND XVIII IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $100 per unit and as of September 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $120.83 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1388 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Century Properties Fund XVIII...................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-30 Background of the Offer...................... S-30 Alternatives Considered...................... S-31 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-56 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-57 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 1389
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1390 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Century Properties Fund XVIII. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Fox Partners, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1391 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1392 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $9.80 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1393 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $190.00 per unit over the period from January 1, 1997 through September 30, 1998. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $100.00 per unit and as of September 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $120.83 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your S-4 1394 partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, S-5 1395 we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1396 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1397 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of September 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $120.83 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $190.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you chose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of S-8 1398 all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 1399 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 1400 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 1401 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 35.6% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 1402 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1403 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1404 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1405 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1406 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $1 to $190 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1407 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 9% of your partnership's cash available for distributions for its services as general partner and may receive reimbursement for expenses generated in such capacity. For the first six months of 1998, the general partner received $64,000 in such fees and reimbursements. The property manager received management fees of $120,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Century Properties Fund XVIII was organized on July 16, 1982, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital appreciation S-18 1408 and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Overlook Apartments, a 304-unit complex in Salt Lake City, Utah and Oak Run Apartments, a 420-unit complex in Dallas, Texas. The general partner of your partnership is Fox Partners, which is a majority-owned subsidiary of AIMCO. NPI-AP Management, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 75,000 units of limited partnership interest issued and outstanding, which were held of record by 4,817 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1409 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1410
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1411 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1412
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1413 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1414 SUMMARY FINANCIAL INFORMATION OF CENTURY PROPERTIES FUND XVIII The summary financial information of Century Properties Fund XVIII for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Century Properties Fund XVIII for the years ended December 31, 1997 and 1996, 1995 and 1994 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CENTURY PROPERTIES FUND XVIII
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues........................................ $ 2,424 $ 2,435 $ 4,917 $ 4,737 $ 4,543 Net Income (Loss)..................................... 255 313 457(A) 146 (4) Net Income (Loss) per limited partnership unit........ 3.07 3.76 6.79 1.79 (0.05) Distributions per limited partnership unit............ 9.81 -- 8.57 -- --
JUNE 30, DECEMBER 31, ----------------- ---------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.......... $16,911 $17,335 $17,082 $17,611 $18,065 Total Assets.......................................... 19,545 19,654 19,508 19,705 19,840 Notes Payable......................................... 18,457 18,461 18,550 18,675 19,127 Partners' Capital (Deficit)........................... (134) 752 354 439 293
- ------------------------- (A) Net income before extraordinary items. COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CENTURY PROPERTIES PARTNERSHIP FUND XVIII ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding............ $1.125 $1.85 $9.81 $8.57
S-25 1415 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $190.00 per unit over a period from January 1, 1997 through September 30, 1998. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $100.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of September 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $120.83 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1416 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. S-27 1417 This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $9.80 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." S-28 1418 FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. S-29 1419 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in NPI-AP Management, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 35.6% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In December 1997, Madison River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 5,259.5 units (representing approximately 7.0% of the number outstanding) at a cash purchase price of $70 per unit on January 30, 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. S-30 1420 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. S-31 1421 There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1422 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1423 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1424 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1425 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1426 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1427 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1428 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1429 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1430 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1431 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 1432 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-43 1433 compensatory damages to exceed $15 million. A response to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1434 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1435 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1436 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1437 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same decisions. Additionally, upon a Termination, the Old partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 1438 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive at gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - ------------------------------------------- ---------------- -------------- -------------- Overlook Apartments........................ $ % $ Oak Run Apartments.........................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 1439 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 1440 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $9.80 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 1441 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 1442 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $1.00 to $190.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 5,739.5 units (representing less than 7.65% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the period from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CENTURY PROPERTIES FUND XVIII REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $56.00 $ 70.00 (c) (c) Second Quarter.................................. 51.00 51.00 -- -- First Quarter................................... 15.00 67.00 -- -- Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 1.00 190.00 -- -- Third Quarter................................... 2.00 55.00 $56.00 $59.00 Second Quarter.................................. 31.00 49.03 49.00 49.00 First Quarter................................... 3.42 46.50 39.00 50.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. N/A N/A 20.00 36.00 Third Quarter................................... N/A N/A 29.00 34.00 Second Quarter.................................. N/A N/A 23.00 23.00 First Quarter................................... N/A N/A -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-53 1443 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Oak Run Apartments was appraised in July 1997 by an independent, third party appraiser, Koeppel Tenner Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act S-54 1444 of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $15,100,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. Estimate of Net Asset Value in Connection with Insignia Property Trust Formation. In connection with the formation of Insignia Property Trust, Insignia Financial Group, Inc. ("Insignia") prepared estimates of the value of your partnership's properties and of a unit as of December 31, 1996. Insignia estimated the aggregate value of your partnership properties to be $25,033,052 and the asset value of a unit to be $100. However, since December 1996, the operating performance of your partnership's properties have changed, the current assets of your partnership has changed and your partnership's properties have increased in value. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Liquidation Value in Connection with the Previous Tender Offer by an Affiliate. In connection with the December 1997 tender offer by an affiliate of your general partner, the affiliate estimated the net liquidation value of a unit (as of September 30, 1997) to be $120.83. This net liquidation value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net liquidation value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net liquidation value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net liquidation value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its S-55 1445 entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. S-56 1446 SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure S-57 1447 and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 1448 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available For Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2007. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership was formed to invest in, acquire, The purpose of the AIMCO Operating Partnership is to manage and ultimately sell income producing real conduct any business that may be lawfully conducted by properties which are improved or capable of improvement a limited partnership organized pursuant to the or which will be improved within a reasonable period Delaware Revised Uniform Limited Partnership Act (as after acquisition and to make, service and ultimately amended from time to time, or any successor to such dispose of mortgage loans on income producing real statute) (the "Delaware Limited Partnership Act"), properties. Your partnership may enter into ventures, provided that such business is to be conducted in a partnerships, REITs and other business arrangements manner that permits AIMCO to be qualified as a REIT, with respect to real estate deemed prudent by the unless AIMCO ceases to qualify as a REIT. The AIMCO general partner in order to promote the business of the Operating Partnership is authorized to perform any and partnership, subject, however, to the provision of your all acts for the furtherance of the purposes and partnership's agreement of limited partnership. business of the AIMCO Operating Partnership, provided Additionally, your partnership may engage in any other that the AIMCO Operating Partnership may not take, or business or do any and all acts and things which may be refrain from taking, any action which, in the judgment necessary, incidental or convenient to carry on the of its general partner could (i) adversely affect the partnership's purpose and business as specified above. 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.
S-59 1449 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 75,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, after November 5, No action or consent by the OP Unitholders is required 1983, the general partner is prohibited from admit- in connection with the admission of any additional OP ting any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your general partner may not enter into a funds or other assets to its subsidiaries or other contract with your partnership that would bind the persons in which it has an equity investment, and such partnership after the removal of the general partner. persons may borrow funds from the AIMCO Operating Your general partner may not grant itself or an Partnership, on terms and conditions established in the affiliate an exclusive listing for the sale of sole and absolute discretion of the general partner. To partnership assets, purchase or lease real property the extent consistent with the business purpose of the from the partnership, or sell or lease real property in AIMCO Operating Partnership and the permitted which the general partner has an interest to the activities of the general partner, the AIMCO Operating partnership. Your partnership may not lend money to the Partnership may transfer assets to joint ventures, general partner. The general partner may not make limited liability companies, partnerships, long-term secured loans to your partners and, on corporations, business trusts or other business short-term unsecured loans made to your partnership, entities in which it is or thereby becomes a may not receive interest or other financing charges or participant upon such terms and subject to such fees in excess of those amounts which would be charged conditions consistent with the AIMCO Operating Part- by third party financing institutions on comparable nership Agreement and applicable law as the general loans for the same purpose in the same geographic area partner, in its sole and absolute discretion, believes (such interest rate per annum will not exceed 2% above to be advisable. Except as expressly permitted by the the prime rate as charged by Bank of America, N.T. & AIMCO Operating Partnership Agreement, neither the S.A.). Unless certain conditions are satisfied, the general partner nor any of its affiliates may sell, general partner may not issue a wrap-around note or transfer or convey any property to the AIMCO Operating mortgage to your partnership to finance the purchase of Partnership, directly or indirectly, except pursuant to property. The general partner may not receive any transactions that are determined by the general partner insurance brokerage fees for issuing any insurance in good faith to be fair and reasonable. policy to your partnership or any commission for the placement of mortgages or trust deed loans on your partnership's properties. Your general partner may not cause your partnership to enter into any contract with the general partner to construct or develop properties or to render any services in connection with such construction or development. Your general partner may not cause your partnership to enter into any transaction with any other real estate program in which the general partner or any affiliate has an interest.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among your partnership. Your partnership may not incur long- other things, its ability to incur
S-60 1450 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP term secured indebtedness with respect to a property of indebtedness. See "Risk Factors -- Risks of Significant your partnership which exceeds 80% of the then Indebtedness" in the accompanying Prospectus. appraised value of such property.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand provides that a limited partner upon written request, with a statement of the purpose of such demand and at after payment of the reasonable expense of duplication such OP Unitholder's own expense, to obtain a current and for any proper purpose, will be sent a copy of the list of the name and last known business, residence or certificate or certificates of limited partnership mailing address of the general partner and each other containing the most recent listing of limited partner OP Unitholder. names, addresses and capital contributions.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership, subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership. No the right to vote on certain matters described under limited partner has any authority or right to act for "Comparison of Ownership of Your Units and AIMCO OP or bind your partnership or participate in or have any Units -- Voting Rights" below. The general partner may control over your partnership business except as not be removed by the OP Unitholders with or without required by law. 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 Your general partner and any of its affiliates are Notwithstanding anything to the contrary set forth in entitled to indemnification for any liability, loss or the AIMCO Operating Partnership Agreement, the general damage incurred by them or by the partnership by reason partner is not liable to the AIMCO Operating of any act performed or omitted to be performed by them Partnership for losses sustained, liabilities incurred in connection with the business of the partnership, or benefits not derived as a result of errors in including costs and attorney's fees and any amounts judgment or mistakes of fact or law of any act or expended in the settlements of any claims of liability omission if the general partner acted in good faith. provided that if such liability arises out of any The AIMCO Operating Partnership Agreement provides for action or inaction of the general partner such course indemnification of AIMCO, or any director or officer of of conduct did not constitute fraud, negligence or AIMCO (in its capacity as the previous general partner misconduct by the general partner. All judgments of the AIMCO Operating Partnership), the general against the partnership and the general partner, partner, any officer or director of general partner or wherein the general partner is entitled to the AIMCO Operating Partnership and such other persons indemnification, must first be satisfied from as the general partner may designate from and against partnership assets before the general partner is all losses, claims, damages, liabilities, joint or responsible for these obligations. Notwithstanding the several, expenses (including legal fees), fines, above paragraph, neither the general partner, nor any settlements and other amounts incurred in connection affiliate of the general partner
S-61 1451 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or the partnership, will be indemnified from any with any actions relating to the operations of the liability incurred by them in connection with (1) any AIMCO Operating Partnership, as set forth in the AIMCO claim or settlement involving allegations that the Operating Partnership Agreement. The Delaware Limited securities laws were violated by the general partner or Partnership Act provides that subject to the standards by any such other person unless: (a) the general and restrictions, if any, set forth in its partnership partner or other persons or entities seeking agreement, a limited partnership may, and shall have indemnification are successful in defending such the power to, indemnify and hold harmless any partner action, and (b) such indemnification is specifically or other person from and against any and all claims and approved by a court of law which is advised as to the demands whatsoever. It is the position of the current position of any relevant regulatory agencies Securities and Exchange Commission that indemnification regarding indemnification for securities law of directors and officers for liabilities arising under violations; or (2) any liability imposed by law, the Securities Act is against public policy and is including liability for fraud, bad faith or negligence. unenforceable pursuant to Section 14 of the Securities The general partner has no liability whatsoever to the Act of 1933. partnership or any limited partner for any loss suffered by the partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning a majority of the partner may not be removed as general partner of the outstanding units. The general partner may admit an AIMCO Operating Partnership by the OP Unitholders with additional or substitute general partner with the or without cause. Under the AIMCO Operating Partnership consent of limited partners owning a majority of the Agreement, the general partner may, in its sole outstanding units. No limited partner may substitute a discretion, prevent a transferee of an OP Unit from transferee of his units in such limited partner's place becoming a substituted limited partner pursuant to the without the consent of the general partner which may be AIMCO Operating Partnership Agreement. The general withheld at the sole discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners (1) to reflect the addition or the general partner may, without the consent of the OP substitution of limited partners or the reduction of Unitholders, amend the AIMCO Operating Partnership the capital accounts upon the return of capital to Agreement, amendments to the AIMCO Operating partners; (2) to add the representations, duties or Partnership Agreement require the consent of the obligations of the general partner or affiliates or holders of a majority of the outstanding Common OP surrender any right or power granted to the general Units, excluding AIMCO and certain other limited partner or its affiliates herein, for the benefit of exclusions (a "Majority in Interest"). Amendments to the limited partners; (3) to cure any ambiguity, to the AIMCO Operating Partnership Agreement may be correct or supplement any provision herein which may be proposed by the general partner or by holders of a inconsistent with any other provision herein, or to add Majority in Interest. Following such proposal, the any other provisions with respect to matters or general partner will submit any proposed amendment to questions arising under your partnership's agreement of the OP Unitholders. The general partner will seek the limited liability; (4) to delete or add any provision written consent of the OP Unitholders on the proposed from or to your partnership's agreement of limited amendment or will call a meeting to vote thereon. See liability requested to be so deleted or added by any "Description of OP Units -- Amendment of the AIMCO federal or state regulatory agency, which is deemed by Operating Partnership Agreement" in the accompanying such agency to be for the benefit of the limited Prospectus. partners. No amendment may be made without the consent of the affected limited partner if such amendment: (1) converts the limited partner into a general partner, (2) eliminates or decreases the limited liability of the limited partner, (3) alters the interest of a partner in the allocations or distributions from your partnership or (4) affects the status of your partnership as a partnership for Federal income tax purposes. Other amendments to your partnership's agreement of limited partnership must be approved by limited partnership holding a majority of the then outstanding units.
S-62 1452 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Compensation and Fees Your general partner receives 9% of the Cash Available The general partner does not receive compensation for For Distribution as compensation for its services as its services as general partner of the AIMCO Operating general partner and may receive reimbursement for Partnership. However, the general partner is entitled expenses incurred in such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations your partnership's agreement of limited partnership. is generally limited to the amount of their invest- After its capital contribution is fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner will, except as otherwise required by limitations on the liability of limited partners for applicable law, be required to make any further capital the obligations of a limited partnership have not been contributions or lend any funds to your partnership. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, partnership funds may not be commingled partnership agreement, Delaware law generally requires with the funds of any other person except as provided a general partner of a Delaware limited partnership to in the partnership agreement. Your general partner may adhere to fiduciary duty standards under which it owes engage in or possess an interest in any other business its limited partners the highest duties of good faith, or venture of every nature and description, fairness and loyalty and which generally prohibit such independently or with others, including the ownership, general partner from taking any action or engaging in financing, leasing, operation, management, brokerage any transaction as to which it has a conflict of and development of real property. interest. The AIMCO Operating Partnership Agreement 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 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
S-63 1453 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
S-64 1454 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; extend the term of Prospectus. So long as any institution of bankruptcy your partnership; remove or elect a Preferred OP Units are outstand- proceedings, an assignment for the general partner; and approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- retiring. Your partnership may be be necessary for effecting any ship Agreement, the general partner continued by the remaining general amendment of any of the provisions has the power to effect the partner or, if none, the limited of the Partnership Unit Desig- acquisition, sale, transfer, partners may agree to continue your nation of the Preferred OP Units exchange or other disposition of partnership by electing a successor that materially and adversely any assets of the AIMCO Operating general partner upon the vote of affects the rights or preferences Partnership (including, but not the limited partners owning a of the holders of the Preferred OP limited to, the exercise or grant majority of the units within 120 Units. The creation or issuance of of any conversion, option, days after the retirement of the any class or series of partnership privilege or subscription right or general partner. units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations, sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and in its sole and abso-
S-65 1455 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS results and net sales or from time to time on or after the lute discretion determine, of refinancing proceeds available from fifth anniversary of the issue date Available Cash (as defined in the the disposition of your of the Preferred OP Units, the AIMCO Operating Partnership partnership's assets. AIMCO Operating Partnership may Agreement) generated by the AIMCO adjust the annual distribution rate Operating Partnership during such on the Preferred OP Units to the quarter to the general partner, the lower of (i) % plus the annual special limited partner and the interest rate then applicable to holders of Common OP Units on the U.S. Treasury notes with a maturity record date established by the of five years, and (ii) the annual general partner with respect to dividend rate on the most recently such quarter, in accordance with issued AIMCO non-convertible their respective interests in the preferred stock which ranks on a AIMCO Operating Partnership on such parity with its Class H Cumu- record date. Holders of any other lative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign one or There is no public market for the There is no public market for the more whole units by a written Preferred OP Units and the OP Units. The AIMCO Operating Part- instrument in accordance with your Preferred OP Units are not listed nership Agreement restricts the partnership's agreement of limited on any securities exchange. The transferability of the OP Units. partnership. In order for an Preferred OP Units are subject to Until the expiration of one year assignee to become a substituted restrictions on transfer as set from the date on which an OP limited partner the following forth in the AIMCO Operating Unitholder acquired OP Units, conditions must first be satisfied: Partnership Agreement. subject to certain exceptions, such (1) the filing with the partnership OP Unitholder may not transfer all of a written instrument of as- Pursuant to the AIMCO Operating or any portion of its OP Units to signment covering no less than five Partnership Agreement, until the any transferee without the consent units; (2) the execution by the expiration of of the gen- assignor and
S-66 1456 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS assignee of any other documentation one year from the date on which a eral partner, which consent may be required or requested by the holder of Preferred OP Units withheld in its sole and absolute general partner; (3) the written acquired Preferred OP Units, discretion. After the expiration of consent of the general partner is subject to certain exceptions, such one year, such OP Unitholder has obtained; and (4) a transfer fee holder of Preferred OP Units may the right to transfer all or any covering all reasonable expenses not transfer all or any portion of portion of its OP Units to any connected with such substitution is its Preferred OP Units to any person, subject to the satisfaction paid to the partnership. transferee without the consent of of certain conditions specified in the general partner, which consent the AIMCO Operating Partnership may be withheld in its sole and Agreement, including the general absolute discretion. After the partner's right of first refusal. expiration of one year, such See "Description of OP Units -- holders of Preferred OP Units has Transfers and Withdrawals" in the the right to transfer all or any accompanying Prospectus. portion of its Preferred OP Units to any person, subject to the After the first anniversary of satisfaction of certain conditions becoming a holder of Common OP specified in the AIMCO Operating Units, an OP Unitholder has the Partnership Agreement, including right, subject to the terms and the general partner's right of conditions of the AIMCO Operating first refusal. Partnership Agreement, to require the AIMCO Operating Partnership to After a one-year holding period, a redeem all or a portion of the holder may redeem Preferred OP Common OP Units held by such party Units and receive in exchange in exchange for a cash amount based therefor, at the AIMCO Operating on the value of shares of Class A Partnership's option, (i) subject Common Stock. See "Description of to the terms of any Senior Units, OP Units -- Redemption Rights" in cash in an amount equal to the the accompanying Prospectus. Upon Liquidation Preference of the receipt of a notice of redemption, Preferred OP Units tendered for the AIMCO Operating Partnership redemption, (ii) a number of shares may, in its sole and absolute of Class I Cumulative Preferred discretion but subject to the Stock of AIMCO that pay an restrictions on the ownership of aggregate amount of dividends yield Class A Common Stock imposed under equivalent to the distributions on AIMCO's charter and the transfer the Preferred OP Units tendered for restrictions and other limitations redemption and are part of a class thereof, elect to cause AIMCO to or series of preferred stock that acquire some or all of the tendered is then listed on the New York Common OP Units in exchange for Stock Exchange or another national Class A Common Stock, based on an securities exchange, or (iii) a exchange ratio of one share of number of shares of Class A Common Class A Common Stock for each Com- Stock of AIMCO that is equal in mon OP Unit, subject to adjustment Value to the Liquidation Preference as provided in the AIMCO Operating of the Preferred OP Units tendered Partnership Agreement. for redemption. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1457 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1458 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1459 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1460 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1461 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1462 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1463 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1464 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1465 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 9% of your partnership's cash available for distributions for its services as general partner and may also receive reimbursements for expenses generated in such capacity. The general partner received such fees and reimbursements equalling $154,000, $134,000 and $64,000, in 1996, 1997 and the first six months of 1998, respectively. The property manager received management fees of $235,000 in 1996, $242,000 in 1997 and $120,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 1466 YOUR PARTNERSHIP GENERAL Century Properties Fund XVIII was organized on July 16, 1982, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Overlook Apartments, a 304-unit complex in Salt Lake City, Utah; and Oak Run Apartments, a 420-unit complex in Dallas, Texas. The general partner of your partnership is Fox Partners, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. NPI-AP Management, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 75,000 units issued and outstanding, which were held of record by 4,817 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated November 5, 1982, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated your partnership would sell its properties five to eight years after their acquisition, depending on the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2007, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating S-77 1467 current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner is not liable to the partnership for any loss suffered by the partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Your general partner and any of its affiliates are entitled to indemnification for any liability, loss or damage incurred by them or by the partnership by reason of any act performed or omitted to be performed by them in connection with the business of the partnership, including costs and attorney's fees and any amounts expended in the settlements of any claims of liability provided that if such liability arises out of any action or inaction of the general partner such conduct did not constitute fraud, negligence or misconduct by the general partner. All judgments against the partnership and the general partner, wherein the general partner is entitled to indemnification, must first be satisfied from partnership assets before the general partner is responsible for these obligations. Notwithstanding the above paragraph, neither the general partner, nor any affiliate of the general partner or the partnership, will be indemnified from any liability incurred by them in connection with (1) any claim or settlement involving allegations that the securities laws were violated by the general partner or by any such other person unless: (a) the general partner or other person or entities seeking indemnification are successful in defending such action, and (b) such indemnification is specifically approved by a court of law which is advised as to the current position of any relevant regulatory agencies regarding indemnification for securities law violations; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-78 1468 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 8.58 January 1, 1998 - June 30, 1998............................. 9.80
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 35.6% interest in your partnership, including 26,940 units held by us and the interest held by Fox Partners, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $182,000 1995........................................................ 162,000 1996........................................................ 154,000 1997........................................................ 134,000 1998 (through June 30)...................................... 64,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $177,000 1995........................................................ 212,000 1996........................................................ 235,000 1997........................................................ 242,000 1998 (through June 30)...................................... 120,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 1469 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of S-80 1470 AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Century Properties Fund XVIII appearing in Century Properties Fund XVIII Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 1471 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Century Properties Fund XVIII Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Century Properties Fund XVIII (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1472 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the A-2 1473 Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1474 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1475
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1476
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1477
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1478
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1479 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1480 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CENTURY PROPERTIES FUND XIX IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $288.00 per unit as of June 30, 1997 and an affiliate of your general partner estimated the net liquidation value of your units to be $262.35 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1481 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Century Properties Fund XIX........................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-31 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-56 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-57 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-59 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-60 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77
i 1482
PAGE ---- Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78 Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80
PAGE ---- Compensation Paid to the General Partner and its Affiliates............................. S-80 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1483 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Century Properties Fund XIX. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Fox Partners II, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1484 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1485 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $20.02 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1486 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $21 per unit to $380 per unit over the last two years. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $288.00 per unit and as of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $262.35 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to S-4 1487 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units (except for units held by IRAs and Keogh Plans) if you are tendering some of your units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, S-5 1488 we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1489 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1490 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $288.00 per unit and as of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $262.35 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $21.00 per unit to $380.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of S-8 1491 factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general S-9 1492 partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 1493 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 1494 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 32.9% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 1495 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1496 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1497 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1498 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1499 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $21 to $380 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1500 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 10% of your partnership's cash available for distribution for its services as general partner and may receive reimbursement for expenses generated in such capacity. In the first six months of 1998, your general partner received $82,000. The property manager received management fees of $405,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Century Properties Fund XIX was organized on August 6, 1982, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital appreciation S-18 1501 and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following eight residential apartment complexes: Wood Lake Apartments, a 220-unit complex in Atlanta, Georgia; Greenspoint Apartments, a 336-unit complex in Phoenix, Arizona; Sandspoint Apartments, a 432-unit complex in Phoenix, Arizona; Vinings Peak Apartments, a 280-unit complex in Atlanta, Georgia; Plantation Crossing Apartment, a 180-unit complex in Atlanta, Georgia; Sunrunner Apartments, a 200-unit complex in St. Petersburg, Florida; McMillan Place Apartments, a 402-unit complex in Dallas, Texas; and Misty Woods Apartments, a 228-unit complex in Charlotte, North Carolina. The general partner of your partnership is Fox Partners II, which is a majority-owned subsidiary of AIMCO. NPIAP Management L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 89,292 units of limited partnership interest issued and outstanding, which were held of record by 5,900 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1502 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1503
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1504 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1505
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1506 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1507 SUMMARY FINANCIAL INFORMATION OF CENTURY PROPERTIES FUND XIX The summary financial information of Century Properties Fund XIX for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Century Properties Fund XIX for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CENTURY PROPERTIES FUND XIX
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------ ------ ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues........................................... $8,079 $7,769 $15,989 $15,747 $15,079 Net Income (Loss)........................................ 310 96 85 (948)(A) (2,047)(A) Net Income (Loss) per limited partnership unit........... 3.06 0.95 0.84 (9.50) (36.39) Distributions per limited partnership unit............... 20.01 -- -- -- --
JUNE 30, DECEMBER 31, --------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation........... $54,937 $56,864 $55,825 $57,863 $59,534 Total Assets........................................... 60,869 63,136 62,738 63,240 64,379 Notes Payable.......................................... 61,004 61,292 60,900 61,668 62,342 Partners' Capital (Deficit)............................ (1,728) (203) (214) (299) 663
- --------------- (A) Net income before extraordinary items. COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CENTURY PROPERTIES PARTNERSHIP FUND XIX ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding..................... $1.125 $1.85 $20.01 $0.00
S-25 1508 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $21 per unit to $380.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $288.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $262.35 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1509 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. S-27 1510 This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $20.02 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." S-28 1511 FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your S-29 1512 partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in NPI-AP Management, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 35.6% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers On October 15, 1998, Madison Liquidity Investors 104, LLC ("Madison"), which is not affiliated with us or your general partner, commenced a tender offer to acquire units of your partnership. Madison is seeking to purchase up to 4.9% of the outstanding units for $100 per unit, less transfer fees. The offer expires November 20, 1998. Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1997, IPLP Acquisition I LLP, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 4,892 units (representing approximately 5.5% of the number outstanding) at a cash purchase price of $175 per unit on October 6, 1998. Prior to such tender offer, DeForest Ventures I, L.P., which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced tender offers for $65.70 per unit and purchased 24,812 shares between October 1994 and June 1995. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. S-30 1513 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. S-31 1514 There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1515 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1516 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans) if you are tendering some of your units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1517 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1518 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1519 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1520 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1521 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1522 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1523 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1524 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 1525 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-43 1526 compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1527 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1528 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1529 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1530 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 1531 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Wood Lake Apartments..................... $ % $ Greenspoint Apartments................... Sands Point Apartments................... Vinings Peak Apartments.................. Plantation Crossing Apartments........... Sunrunner Apartments..................... McMillan Place Apartments................ Misty Woods Apartments...................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 1532 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 1533 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $20.02 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 1534 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 1535 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $21.00 to $380.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from July 1, 1995 to June 30, 1997 an aggregate of 1,139 units (representing less than 1.3% of the total outstanding units) was transferred (excluding units transferred by DeForest Ventures I, L.P. to Insignia in January 1996 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from March 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CENTURY PROPERTIES FUND XIX REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE GENERAL PARTNER(a) THE PARTNERSHIP SPECTRUM(b) ----------------------------- ----------------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT ------------- ------------- ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter...................... $ 21.00 $380.00 Not Available Not Available Second Quarter..................... 100.00 225.01 Not Available Not Available First Quarter...................... 60.00 188.00 Not Available Not Available Fiscal Year Ended December 31, 1997: Fourth Quarter..................... 125.00 130.00 Not Available Not Available Third Quarter...................... 74.20 164.00 Not Available Not Available Second Quarter..................... 67.00 168.00 $110.00 $160.00 First Quarter...................... 56.57 132.00 92.00 164.00 Fiscal Year Ended December 31, 1996: Fourth Quarter..................... Not Available Not Available 110.00 118.00 Third Quarter...................... Not Available Not Available 76.00 102.00 Second Quarter..................... Not Available Not Available 57.00 73.00 First Quarter...................... Not Available Not Available -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general S-53 1536 partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Certain of your partnership's properties have been appraised in the past several years by independent, third party appraisers, Koeppel Tener Real Estate Services ("KTR") or Joseph J. Blake & Associates, Inc. ("Blake") (the "Appraisers"), in connection with a refinancing of the properties. According to the appraisal reports, the scope of the appraisals included an inspection of the properties and an analysis of the surrounding markets. The Appraisers relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that their reports were prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of S-54 1537 1989 (known as "FIRREA"). The estimated market values of the fee simple estate of the properties were as follows:
PROPERTY NAME APPRAISED VALUE DATE OF APPRAISAL APPRAISER ------------- --------------- ----------------- --------- Sunrunner Apartments............ $ 5,400,000 April 15, 1996 Blake McMillan Place Apartments....... 11,500,000 July 1, 1997 KTR Misty Woods Apartments.......... 8,500,000 November 2, 1995 KTR
A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Estimate of Net Asset Value in Connection with Insignia Property Trust Formation. In connection with the formation of Insignia Property Trust, Insignia Financial Group, Inc. ("Insignia") prepared estimates of the value of your partnership's properties and of a unit as of December 31, 1996. Insignia estimated the aggregate value of your partnership properties to be $85,484,882 and the asset value of a unit to be $288. However, since December 1996, the operating performance of your partnership's properties have changed, the current assets of your partnership has changed and your partnership's properties have increased in value. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Liquidation Value in Connection with the Tender Offer by an Affiliate. In connection with the August 1997 tender offer by an affiliate of your general partner, the affiliate estimated the net liquidation value of a unit (as of June 30, 1997) to be $262.35. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net liquidation value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net liquidation value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. S-55 1538 We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also S-56 1539 performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated S-57 1540 to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-58 1541 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-59 1542 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available for Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2007. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership was formed to invest in, acquire, The purpose of the AIMCO Operating Partnership is to manage and ultimately sell income producing real conduct any business that may be lawfully conducted by properties which are improved or capable of improvement a limited partnership organized pursuant to the or which will be improved within a reasonable period Delaware Revised Uniform Limited Partnership Act (as after acquisition and to make, service and ultimately amended from time to time, or any successor to such dispose of mortgage loans on income producing real statute) (the "Delaware Limited Partnership Act"), properties. Your partnership may enter into ventures, provided that such business is to be conducted in a partnerships, REITs and other business arrangements manner that permits AIMCO to be qualified as a REIT, with respect to real estate deemed prudent by the unless AIMCO ceases to qualify as a REIT. The AIMCO general partner in order to promote the business of the Operating Partnership is authorized to perform any and partnership, subject, however, to the provisions of all acts for the furtherance of the purposes and your partnership's agreement of limited partnership. business of the AIMCO Operating Partnership, provided Additionally, your partnership may engage in any other that the AIMCO Operating Partnership may not take, or business or do any and all acts and things which may be refrain from taking, any action which, in the judgment necessary, incidental or convenient to carry on the of its general partner could (i) adversely affect the partnership's purpose and business as specified above. 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.
S-60 1543 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 90,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, after December No action or consent by the OP Unitholders is required 31, 1984, the general partner is prohibited from admit- in connection with the admission of any additional OP ting any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your general partner may not enter into a funds or other assets to its subsidiaries or other contract with your partnership that would bind the persons in which it has an equity investment, and such partnership after the removal of the general partner. persons may borrow funds from the AIMCO Operating Your general partner may not grant itself or an Partnership, on terms and conditions established in the affiliate an exclusive listing for the sale of sole and absolute discretion of the general partner. To partnership assets, purchase or lease real property the extent consistent with the business purpose of the from the partnership, or sell or lease real property in AIMCO Operating Partnership and the permitted which the general partner has an interest to the activities of the general partner, the AIMCO Operating partnership. Your partnership may not lend money to the Partnership may transfer assets to joint ventures, general partner. The general partner may not make limited liability companies, partnerships, long-term secured loans to your partners and, on corporations, business trusts or other business short-term unsecured loans made to your partnership, entities in which it is or thereby becomes a may not receive interest or other financing charges or participant upon such terms and subject to such fees in excess of those amounts which would be charged conditions consistent with the AIMCO Operating Part- by third party financing institutions on comparable nership Agreement and applicable law as the general loans for the same purpose in the same geographic area partner, in its sole and absolute discretion, believes (such interest rate per annum will not exceed 2% above to be advisable. Except as expressly permitted by the the prime rate as charged by Bank of America, N.T. & AIMCO Operating Partnership Agreement, neither the S.A.). Unless certain conditions are satisfied, the general partner nor any of its affiliates may sell, general partner may not issue a wrap-around note or transfer or convey any property to the AIMCO Operating mortgage to your partnership to finance the purchase of Partnership, directly or indirectly, except pursuant to property. The general partner may not receive any transactions that are determined by the general partner insurance brokerage fees for issuing any insurance in good faith to be fair and reasonable. policy to your partnership or any commission for the placement of mortgages or trust deed loans on your partnership's properties. Your general partner may not cause your partnership to enter into any contract with the general partner to construct or develop properties or to render any services in connection with such construction or development. Your general partner may not cause your partnership to enter into any transaction with any other real estate program in which the general partner or any affiliate has an interest.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among your partnership. Your partnership may not incur long- other things, its ability to incur
S-61 1544 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP term secured indebtedness with respect to a property of indebtedness. See "Risk Factors -- Risks of Significant your partnership which exceeds 80% of the then Indebtedness" in the accompanying Prospectus. appraised value of such property.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand provides that a limited partner upon written request, with a statement of the purpose of such demand and at after payment of the reasonable expense of duplication such OP Unitholder's own expense, to obtain a current and for any proper purpose, will be sent a copy of the list of the name and last known business, residence or certificate or certificates of limited partnership mailing address of the general partner and each other containing the most recent listing of limited partner OP Unitholder. names, addresses and capital contributions.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership, subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership. No the right to vote on certain matters described under limited partner has any authority or right to act for "Comparison of Ownership of Your Units and AIMCO OP or bind your partnership or participate in or have any Units -- Voting Rights" below. The general partner may control over your partnership business except as not be removed by the OP Unitholders with or without required by law. 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 Your general partner and any of its affiliates are Notwithstanding anything to the contrary set forth in entitled to indemnification for any liability, loss or the AIMCO Operating Partnership Agreement, the general damage incurred by them or by the partnership by reason partner is not liable to the AIMCO Operating of any act performed or omitted to be performed by them Partnership for losses sustained, liabilities incurred in connection with the business of the partnership, or benefits not derived as a result of errors in including costs and attorney's fees and any amounts judgment or mistakes of fact or law of any act or expended in the settlements of any claims of liability omission if the general partner acted in good faith. provided that if such liability arises out of any The AIMCO Operating Partnership Agreement provides for action or inaction of the general partner such course indemnification of AIMCO, or any director or officer of of conduct did not constitute fraud, negligence or AIMCO (in its capacity as the previous general partner misconduct by the general partner. All judgments of the AIMCO Operating Partnership), the general against the partnership and the general partner, partner, any officer or director of general partner or wherein the general partner is entitled to the AIMCO Operating Partnership and such other persons indemnification, must first be satisfied from as the general partner may designate from and against partnership assets before the general partner is all losses, claims, damages, liabilities, joint or responsible for these obligations. Notwithstanding the several, expenses (including legal fees), fines, above paragraph, neither the general partner, nor any settlements and other amounts incurred in connection affiliate of the general partner
S-62 1545 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or the partnership, will be indemnified from any with any actions relating to the operations of the liability incurred by them in connection with (1) any AIMCO Operating Partnership, as set forth in the AIMCO claim or settlement involving allegations that the Operating Partnership Agreement. The Delaware Limited securities laws were violated by the general partner or Partnership Act provides that subject to the standards by any such other person unless: (a) the general and restrictions, if any, set forth in its partnership partner or other persons or entities seeking agreement, a limited partnership may, and shall have indemnification are successful in defending such the power to, indemnify and hold harmless any partner action, and (b) such indemnification is specifically or other person from and against any and all claims and approved by a court of law which is advised as to the demands whatsoever. It is the position of the current position of any relevant regulatory agencies Securities and Exchange Commission that indemnification regarding indemnification for securities law of directors and officers for liabilities arising under violations; or (2) any liability imposed by law, the Securities Act is against public policy and is including liability for fraud, bad faith or negligence. unenforceable pursuant to Section 14 of the Securities The general partner has no liability whatsoever to the Act of 1933. partnership or any limited partner for any loss suffered by the partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning a majority of the partner may not be removed as general partner of the outstanding units. The general partner may admit an AIMCO Operating Partnership by the OP Unitholders with additional or substitute general partner with the or without cause. Under the AIMCO Operating Partnership consent of limited partners owning a majority of the Agreement, the general partner may, in its sole outstanding units. No limited partner may substitute a discretion, prevent a transferee of an OP Unit from transferee of his units in such limited partner's place becoming a substituted limited partner pursuant to the without the consent of the general partner which may be AIMCO Operating Partnership Agreement. The general withheld at the sole discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners (1) to reflect the addition or the general partner may, without the consent of the OP substitution of limited partners or the reduction of Unitholders, amend the AIMCO Operating Partnership the capital accounts upon the return of capital to Agreement, amendments to the AIMCO Operating partners; (2) to add to the representations, duties or Partnership Agreement require the consent of the obligations of the general partner or affiliates or holders of a majority of the outstanding Common OP surrender any right or power granted to the general Units, excluding AIMCO and certain other limited partner or its affiliates herein, for the benefit of exclusions (a "Majority in Interest"). Amendments to the limited partners; (3) to cure any ambiguity, to the AIMCO Operating Partnership Agreement may be correct or supplement any provision herein which may be proposed by the general partner or by holders of a inconsistent with any other provision herein, or to add Majority in Interest. Following such proposal, the any other provisions with respect to matters or general partner will submit any proposed amendment to questions arising under your partnership's agreement of the OP Unitholders. The general partner will seek the limited liability; (4) to delete or add any provision written consent of the OP Unitholders on the proposed from or to your partnership's agreement of limited amendment or will call a meeting to vote thereon. See liability requested to be so deleted or added by any "Description of OP Units -- Amendment of the AIMCO federal or state regulatory agency, which is deemed by Operating Partnership Agreement" in the accompanying such agency to be for the benefit of the limited Prospectus. partners. No amendment may be made without the consent of the affected limited partner if such amendment: (1) converts the limited partner into a general partner, (2) eliminates or decreases the limited liability of the limited partner, (3) alters the interest of a partner in the allocations or distributions from your partnership or (4) affects the status of your partnership as a partnership for Federal income tax purposes. Other amendments to your partnership's agreement of limited partnership must be approved by limited partnership holding a majority of the then outstanding units.
S-63 1546 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Compensation and Fees Your general partner receives 10% of the Cash Available The general partner does not receive compensation for for Distribution as compensation for its services as its services as general partner of the AIMCO Operating general partner and may receive reimbursement for Partnership. However, the general partner is entitled expenses incurred in such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations your partnership's agreement of limited partnership. is generally limited to the amount of their invest- After its capital contribution is fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner will, except as otherwise required by limitations on the liability of limited partners for applicable law, be required to make any further capital the obligations of a limited partnership have not been contributions or lend any funds to your partnership. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, limited partnership funds may not be partnership agreement, Delaware law generally requires commingled with the funds of any other person except as a general partner of a Delaware limited partnership to provided in the partnership agreement. Your general adhere to fiduciary duty standards under which it owes partner may engage in or possess an interest in any its limited partners the highest duties of good faith, other business or venture of every nature and fairness and loyalty and which generally prohibit such description, independently or with others, including general partner from taking any action or engaging in the ownership, financing, leasing, operation, any transaction as to which it has a conflict of management, brokerage and development of real property. interest. The AIMCO Operating Partnership Agreement 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 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
S-64 1547 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
S-65 1548 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; extend the term of Prospectus. So long as any institution of bankruptcy your partnership; remove or elect a Preferred OP Units are outstand- proceedings, an assignment for the general partner; and approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- retiring. Your partnership may be be necessary for effecting any ship Agreement, the general partner continued by the remaining general amendment of any of the provisions has the power to effect the partner or, if none, the limited of the Partnership Unit Desig- acquisition, sale, transfer, partners may agree to continue your nation of the Preferred OP Units exchange or other disposition of partnership by electing a successor that materially and adversely any assets of the AIMCO Operating general partner upon the vote of affects the rights or preferences Partnership (including, but not the limited partners owning a of the holders of the Preferred OP limited to, the exercise or grant majority of the units within 120 Units. The creation or issuance of of any conversion, option, days after the retirement of the any class or series of partnership privilege or subscription right or general partner. units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations, sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and in its sole and abso-
S-66 1549 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS results and net sales of from time to time on or after the lute discretion determine, of refinancing proceeds available from fifth anniversary of the issue date Available Cash (as defined in the the disposition of your of the Preferred OP Units, the AIMCO Operating Partnership partnership's assets. AIMCO Operating Partnership may Agreement) generated by the AIMCO adjust the annual distribution rate Operating Partnership during such on the Preferred OP Units to the quarter to the general partner, the lower of (i) % plus the annual special limited partner and the interest rate then applicable to holders of Common OP Units on the U.S. Treasury notes with a maturity record date established by the of five years, and (ii) the annual general partner with respect to dividend rate on the most recently such quarter, in accordance with issued AIMCO non-convertible their respective interests in the preferred stock which ranks on a AIMCO Operating Partnership on such parity with its Class H Cumu- record date. Holders of any other lative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign one or There is no public market for the There is no public market for the more whole units by a written Preferred OP Units and the OP Units. The AIMCO Operating Part- instrument in accordance with your Preferred OP Units are not listed nership Agreement restricts the partnership's agreement of limited on any securities exchange. The transferability of the OP Units. partnership. In order for an Preferred OP Units are subject to Until the expiration of one year assignee to become a substituted restrictions on transfer as set from the date on which an OP limited partner the following forth in the AIMCO Operating Unitholder acquired OP Units, conditions must first be satisfied: Partnership Agreement. subject to certain exceptions, such (1) the filing with the partnership OP Unitholder may not transfer all of a written instrument of as- Pursuant to the AIMCO Operating or any portion of its OP Units to signment covering no less than five Partnership Agreement, until the any transferee without the consent units; (2) the execution by the expiration of of the gen- assignor and
S-67 1550 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS assignee of any other documentation one year from the date on which a eral partner, which consent may be required or requested by the holder of Preferred OP Units withheld in its sole and absolute general partner; (3) the written acquired Preferred OP Units, discretion. After the expiration of consent of the general partner is subject to certain exceptions, such one year, such OP Unitholder has obtained; and (4) a transfer fee holder of Preferred OP Units may the right to transfer all or any covering all reasonable expenses not transfer all or any portion of portion of its OP Units to any connected with such substitution is its Preferred OP Units to any person, subject to the satisfaction paid to the partnership. transferee without the consent of of certain conditions specified in the general partner, which consent the AIMCO Operating Partnership may be withheld in its sole and Agreement, including the general absolute discretion. After the partner's right of first refusal. expiration of one year, such See "Description of OP Units -- holders of Preferred OP Units has Transfers and Withdrawals" in the the right to transfer all or any accompanying Prospectus. portion of its Preferred OP Units to any person, subject to the After the first anniversary of satisfaction of certain conditions becoming a holder of Common OP specified in the AIMCO Operating Units, an OP Unitholder has the Partnership Agreement, including right, subject to the terms and the general partner's right of conditions of the AIMCO Operating first refusal. Partnership Agreement, to require the AIMCO Operating Partnership to After a one-year holding period, a redeem all or a portion of the holder may redeem Preferred OP Common OP Units held by such party Units and receive in exchange in exchange for a cash amount based therefor, at the AIMCO Operating on the value of shares of Class A Partnership's option, (i) subject Common Stock. See "Description of to the terms of any Senior Units, OP Units -- Redemption Rights" in cash in an amount equal to the the accompanying Prospectus. Upon Liquidation Preference of the receipt of a notice of redemption, Preferred OP Units tendered for the AIMCO Operating Partnership redemption, (ii) a number of shares may, in its sole and absolute of Class I Cumulative Preferred discretion but subject to the Stock of AIMCO that pay an restrictions on the ownership of aggregate amount of dividends yield Class A Common Stock imposed under equivalent to the distributions on AIMCO's charter and the transfer the Preferred OP Units tendered for restrictions and other limitations redemption and are part of a class thereof, elect to cause AIMCO to or series of preferred stock that acquire some or all of the tendered is then listed on the New York Common OP Units in exchange for Stock Exchange or another national Class A Common Stock, based on an securities exchange, or (iii) a exchange ratio of one share of number of shares of Class A Common Class A Common Stock for each Com- Stock of AIMCO that is equal in mon OP Unit, subject to adjustment Value to the Liquidation Preference as provided in the AIMCO Operating of the Preferred OP Units tendered Partnership Agreement. for redemption. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 1551 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 1552 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 1553 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 1554 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 1555 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 1556 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 1557 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 1558 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 1559 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 10% of your partnership's cash available for distribution for its services as general partner and may receive reimbursement for expenses generated in such capacity. The general partner received such fees and reimbursements totaling $187,000, $179,000 and $82,000 in 1996, 1997 and the first six months of 1998, respectively. The property manager received management fees of $737,000 in 1996, $740,000 in 1997 and $405,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 1560 YOUR PARTNERSHIP GENERAL Century Properties Fund XIX was organized on August 6, 1982, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following eight residential apartment complexes: Wood Lake Apartments, a 220-unit complex in Atlanta, Georgia; Greenspoint Apartments, a 336-unit complex in Phoenix, Arizona; Sandspoint Apartments, a 432-unit complex in Phoenix, Arizona; Vinings Peak Apartments, a 280-unit complex in Atlanta, Georgia; Plantation Crossing Apartments, a 180-unit complex in Atlanta, Georgia; Sunrunner Apartments, a 200-unit complex in St. Petersburg, Florida; McMillan Place Apartments, a 402-unit complex in Dallas, Texas; and Misty Woods Apartments, a 228-unit complex in Charlotte, North Carolina. The general partner of your partnership is Fox Partners II, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. NPI-AP Management LP, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 89,292 units issued and outstanding, which were held of record by 5,900 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated September 20, 1983, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated your partnership would sell its properties after five to eight years of ownership. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2007, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-78 1561 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner is not liable to the partnership for any loss suffered by the partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Your general partner and any of its affiliates are entitled to indemnification for any liability, loss or damage incurred by them or by the partnership by reason of any act performed or omitted to be performed by them in connection with the business of the partnership, including costs and attorney's fees and any amounts expended in the settlements of any claims of liability provided that if such liability arises out of any action or inaction of the general partner such conduct did not constitute fraud, negligence or misconduct by the general partner. All judgments against the partnership and the general partner, wherein the general partner is entitled to indemnification, must first be satisfied from partnership assets before the general partner is responsible for these obligations. Notwithstanding the above paragraph, neither the general partner, nor any affiliate of the general partner or the partnership, will be indemnified from any liability incurred by them in connection with (1) any claim or settlement involving allegations that the securities laws were violated by the general partner or by any such other person unless: (a) the general partner or other persons or entities seeking indemnification are successful in defending such action, and (b) such indemnification is specifically approved by a court of law which is advised as to the current position of any relevant regulatory agencies regarding indemnification for securities law violations; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-79 1562 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 20.02
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 35.6% interest in your partnership, including 29,938.66 units held by us and the interest held by Fox Partners II, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $130,000 1995........................................................ 231,000 1996........................................................ 187,000 1997........................................................ 179,000 1998 (through June 30)...................................... 82,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $557,000 1995........................................................ 592,000 1996........................................................ 617,000 1997........................................................ 645,000 1998 (through June 30)...................................... 335,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 1563 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 1564 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Century Properties Fund XIX appearing in Century Properties Fund XIX Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 1565 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Century Properties Fund XIX Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Century Properties Fund XIX (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1566 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1567 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1568 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1569
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1570
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1571
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1572
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1573 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1574 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CENTURY PROPERTIES GROWTH FUND XXII IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. In December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $488.00 per unit and as of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $412.22 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1575 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Century Properties Growth Fund XXII................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 1576
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1577 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Century Growth Fund XXII. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Fox Partners IV, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1578 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1579 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership did not pay any distributions since January 1, 1997. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $ on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. In the last five years, your partnership only made distributions in 1996. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1580 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $75.00 per unit to $400.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $488.00 per unit and as of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $412.22 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1581 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1582 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1583 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1584 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $488.00 per unit and as of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $412.22 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $75.00 per unit to $400.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 1585 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 1586 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 1587 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 1588 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 27.03% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 1589 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1590 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1591 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1592 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1593 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $75.00 to $400.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1594 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 10% of your partnership's cash available for distribution for its services as general partner and may also receive reimbursement for expenses generated in such capacity. For the first six months of 1998, your general partner received total fees and reimbursements of $82,000. The property manager received management fees of $534,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Century Properties Growth Fund XXII was organized on January 31, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 1595 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following nine residential apartment complexes: Wood Creek Apartments, a 432-unit complex in Mesa, Arizona; Plantation Creek Apartments, a 484-unit complex in Atlanta, Georgia; Stoney Creek Apartments, a 364-unit complex in Dallas, Texas; Four Wind Apartments, a 350-unit complex in Overland Park, Kansas; Promontory Point Apartments, a 252-unit complex in Austin, Texas; Cooper's Pointe Apartments, a 192-unit complex in Charleston, South Carolina; Hampton Greens Apartments, a 309-unit complex in Dallas, Texas, Autumn Run Apartments, a 320-unit complex in Naperville, Illinois; and Copper Mill Apartments, a 192-unit complex in Richmond, Virginia. The general partner of your partnership is Fox Partners IV, which is a majority-owned subsidiary of AIMCO. NPI-AP Management L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 82,848 units of limited partnership interest issued and outstanding, which were held of record by 5,471 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1596 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1597
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1598 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1599
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1600 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1601 SUMMARY FINANCIAL INFORMATION OF CENTURY PROPERTIES GROWTH FUND XXII The summary financial information of Century Properties Growth Fund XXII for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Century Properties Growth Fund XXII for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CENTURY PROPERTIES GROWTH FUND XXII
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- IN THOUSANDS, EXCEPT UNIT DATA OPERATING DATA: Total Revenues.............................................. $10,761 $10,182 $20,997 $20,390 $22,710 Net Income (Loss)........................................... 932 431 391 (1,058)(a) 286(a) Net Income (Loss) per limited partnership unit.............. 9.92 4.59 4.16 (16.38) (5.13) Distributions per limited partnership unit.................. -- -- -- 30.76 --
JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $77,487 $80,157 $78,890 $81,547 $84,052 Total Assets................................................ 88,689 87,137 86,809 87,368 91,348 Notes Payable............................................... 73,462 72,890 72,603 73,164 74,111 Partners' Capital (Deficit)................................. 12,955 12,063 12,023 11,632 15,772
- --------------- (a) Net income before extraordinary items. COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CENTURY PROPERTIES PARTNERSHIP GROWTH FUND XXII ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $ 0.00 $0.00
S-25 1602 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $75.00 per unit to $400.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1996, an affiliate of your general partner estimated the net asset value of your units to be $488.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $412.22 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1603 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 1604 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership did not pay distributions with respect to your units for the six months ended June 30, 1998. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. In the last five years, your partnership made distributions only in 1996. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 1605 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in NPI-AP Management L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 27.03% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 1606 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August, 1997, IPLP Acquisition I LLC, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 5,504 units (representing approximately 6.6% of the number outstanding) at a cash purchase price of $275 per unit on October 6, 1997. Prior to such tender offer, DeForest Ventures I, L.P., which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced tender offers for $87.80 per unit and purchased 17,022.5 shares between October 1994 and June 1995. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 1607 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 1608 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1609 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1610 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1611 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1612 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1613 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1614 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1615 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1616 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1617 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1618 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 6,117 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 7.38% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1619 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1620 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1621 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1622 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1623 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1624 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Wood Creek Apartments..................... $ % $ Plantation Creek Apartments............... Stoney Creek Apartments................... Four Winds Apartments..................... Promontory Point Apartments............... Cooper's Pointe Apartments................ Hampton Greens Apartments................. Autumn Run Apartments..................... Cooper Mill Apartments....................
S-48 1625 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. S-49 1626 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would S-50 1627 receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In the last five years, your partnership has only made distribution in 1996. In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. S-51 1628 In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $75.00 to $400.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from July 1, 1995 to September 30, 1998 an aggregate of 919 units (representing approximately 1.2% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from July 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. S-52 1629 CENTURY PROPERTIES GROWTH FUND XXII REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $ 100.00 $ 400.00 $ (c) $ (c) Second Quarter.................................. 75.00 275.00 N/A N/A First Quarter................................... 115.00 267.57 N/A N/A Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 185.00 200.00 N/A N/A Third Quarter................................... 120.00 244.00 N/A N/A Second Quarter.................................. 133.00 257.00 181.00 261.00 First Quarter................................... 126.10 153.30 144.00 210.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 115.00 115.00 167.00 187.00 Third Quarter................................... N/A N/A 79.00 130.00 Second Quarter.................................. N/A N/A -- -- First Quarter................................... N/A N/A -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve S-53 1630 additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Certain of your partnership's properties have been appraised in the past several years by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of those properties. According to the appraisal report, the scope of the appraisal included an inspection of each property and an analysis of the surrounding markets. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the properties were as follows:.
PROPERTY NAME APPRAISED VALUE DATE OF APPRAISAL ------------- --------------- ----------------- Autumn Run Apartments....................................... $17,250,000 April 12, 1996 Cooper's Pointe Apartments.................................. 5,700,000 January 4, 1996 Copper Mill Apartments...................................... 9,700,000 December 7, 1995 Hampton Greens Apartments................................... 7,800,000 November 2, 1995 Plantation Creek Apartments................................. 21,296,000 December 12, 1995 Promontory Point Apartments................................. 9,300,000 November 9, 1995 Stoney Creek Apartments..................................... 10,200,000 November 10, 1995 Wood Creek Apartments....................................... 17,500,000 November 9, 1995
A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Estimate of Net Asset Value in Connection with Insignia Property Trust Formation. In connection with the formation of IPT, Insignia prepared estimates of the value of your partnership's properties and of a unit as of December 31, 1996. Insignia estimated the aggregate value of your partnership properties to be $112,428,109 and the asset value of a unit to be $488. However, since December 1996, the operating performance of your partnership's properties have changed, the current assets of your partnership has changed and your partnership's properties have increased in value. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." S-54 1631 Estimate of Net Liquidation Value in Connection with the Previous Tender Offer by an Affiliate. In connection with the August 1997 tender offer by an affiliate of your general partner, the affiliate estimated the net liquidation value of a unit (as of June 30, 1997) to be $412.22. This net liquidation value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net liquidation value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net liquidation value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-55 1632 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership S-56 1633 and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. S-57 1634 Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 1635 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available For Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2010. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership was formed to invest in, acquire, The purpose of the AIMCO Operating Partnership is to manage and ultimately sell income producing real conduct any business that may be lawfully conducted by properties which are improved or capable of improvement a limited partnership organized pursuant to the or which will be improved within a reasonable period Delaware Revised Uniform Limited Partnership Act (as after acquisition and to make, service and ultimately amended from time to time, or any successor to such dispose of mortgage loans on income producing real statute) (the "Delaware Limited Partnership Act"), properties. Your partnership may enter into ventures, provided that such business is to be conducted in a partnerships, REIT's and other business arrangements manner that permits AIMCO to be qualified as a REIT, with respect to real estate deemed prudent by the unless AIMCO ceases to qualify as a REIT. The AIMCO general partner in order to promote the business of the Operating Partnership is authorized to perform any and partnership, subject, however, to the provisions of all acts for the furtherance of the purposes and your partnership's agreement of limited partnership. business of the AIMCO Operating Partnership, provided Additionally, your partnership may engage in any other that the AIMCO Operating Partnership may not take, or business or do any and all acts and things which may be refrain from taking, any action which, in the judgment necessary, incidental or convenient to carry on the of its general partner could (i) adversely affect the partnership's purpose and business as specified above. 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.
S-59 1636 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 120,000 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, after June 30, No action or consent by the OP Unitholders is required 1986, the general partner is prohibited from admitting in connection with the admission of any additional OP any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your general partner may not enter into a funds or other assets to its subsidiaries or other contract with your partnership that would bind the persons in which it has an equity investment, and such partnership after the removal of the general partner. persons may borrow funds from the AIMCO Operating Your general partner may not grant itself or an Partnership, on terms and conditions established in the affiliate an exclusive listing for the sale or sole and absolute discretion of the general partner. To partnership assets, purchase or lease real property the extent consistent with the business purpose of the from the partnership, or sell or lease real property in AIMCO Operating Partnership and the permitted which the general partner has an interest to the activities of the general partner, the AIMCO Operating partnership. Your partnership may not make loans to the Partnership may transfer assets to joint ventures, general partner or its affiliates but the general limited liability companies, partnerships, partner may short-term unsecured loan to your corporations, business trusts or other business partnership if the general partner does not receive entities in which it is or thereby becomes a interest or financing charges in excess of the lesser participant upon such terms and subject to such of (1) those amounts which would be charged by third- conditions consistent with the AIMCO Operating Part- party financing institution of comparable loans for the nership Agreement and applicable law as the general same purpose in the same geographic area or (2) 2% partner, in its sole and absolute discretion, believes above the prime lending rate established by Bank of to be advisable. Except as expressly permitted by the America, N.T. & S.A. The general partner may not make AIMCO Operating Partnership Agreement, neither the loans encumbering your partnership's properties, the general partner nor any of its affiliates may sell, principal amount of which is scheduled to be paid over transfer or convey any property to the AIMCO Operating a period of not less than 48 months and not more than Partnership, directly or indirectly, except pursuant to 50% of the principal amount of which is scheduled to be transactions that are determined by the general partner paid during the first 24 months. The general partner in good faith to be fair and reasonable. also may not make wrap-around notes and mortgages to your partnership to finance the purchase of property. The general partner may not receive insurance brokerage fees for any insurance policy issued to your partnership or commission or fees for the placement of mortgage or trust deed loans properties. The general partner may not cause your partnership to enter into any contract with the general partner to construct or develop properties or to render any services in connection with such construction or development. Your general partner may not cause your partnership to enter into any transaction with any other real estate program in which the general partner or any affiliate has an interest, subject to your partnership's agreement of limited partnership.
S-60 1637 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among your partnership. Your partnership may not incur long- other things, its ability to incur indebtedness. See term secured indebtedness with respect to a property "Risk Factors -- Risks of Significant Indebtedness" in which exceeds 80% of the then-appraised value of such the accompanying Prospectus. property.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand provides that a limited partner upon written request, with a statement of the purpose of such demand and at after payment of the reasonable expense of duplication such OP Unitholder's own expense, to obtain a current and for any proper purpose, will be sent a copy of the list of the name and last known business, residence or certificate or certificates of limited partnership mailing address of the general partner and each other containing the most recent listing of limited partner OP Unitholder. names, addresses and capital contributions.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Your general partner and any of its affiliates are Notwithstanding anything to the contrary set forth in entitled to indemnification for any liability, loss or the AIMCO Operating Partnership Agreement, the general damage incurred by them or by the partnership by reason partner is not liable to the AIMCO Operating of any act performed or omitted to be performed by them Partnership for losses sustained, liabilities incurred in connection with the business of the partnership, or benefits not derived as a result of errors in including costs and attorney's fees and any amounts judgment or mistakes of fact or law of any act or expended in the settlements of any claims of liability omission if the general partner acted in good faith. provided that if such liability arises out of any The AIMCO Operating Partnership Agreement provides for action or inaction of the general partner such course indemnification of AIMCO, or any director or officer of of conduct did not constitute fraud, negligence or AIMCO (in its capacity as the previous general partner misconduct by the general partner. All judgments of the AIMCO Operating Partnership),
S-61 1638 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against the partnership and the general partner, the general partner, any officer or director of general wherein the general partner is entitled to partner or the AIMCO Operating Partnership and such indemnification, must first be satisfied from other persons as the general partner may designate from partnership assets before the general partner is and against all losses, claims, damages, liabilities, responsible for these obligations. Notwithstanding the joint or several, expenses (including legal fees), above paragraph, neither the general partner, nor any fines, settlements and other amounts incurred in affiliate of the general partner or the partnership, connection with any actions relating to the operations will be indemnified from any liability incurred by them of the AIMCO Operating Partnership, as set forth in the in connection with (1) any claim or settlement AIMCO Operating Partnership Agreement. The Delaware involving allegations that the securities laws were Limited Partnership Act provides that subject to the violated by the general partner or by any such other standards and restrictions, if any, set forth in its person unless: (a) the general partner or other persons partnership agreement, a limited partnership may, and or entities seeking indemnification are successful in shall have the power to, indemnify and hold harmless defending such action, and (b) such indemnification is any partner or other person from and against any and specifically approved by a court of law which is all claims and demands whatsoever. It is the position advised as to the current position of any relevant of the Securities and Exchange Commission that regulatory agencies regarding indemnification for indemnification of directors and officers for securities law violations; or (2) any liability imposed liabilities arising under the Securities Act is against by law, including liability for fraud, bad faith or public policy and is unenforceable pursuant to Section negligence. The general partner has no liability 14 of the Securities Act of 1933. whatsoever to the partnership or any limited partner for any loss suffered by the partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning a majority of the partner may not be removed as general partner of the outstanding units. The general partner may admit an AIMCO Operating Partnership by the OP Unitholders with additional or substitute general partner with the or without cause. Under the AIMCO Operating Partnership consent of limited partners owning a majority of the Agreement, the general partner may, in its sole outstanding units. No limited partner may substitute a discretion, prevent a transferee of an OP Unit from transferee of his units in such limited partner's place becoming a substituted limited partner pursuant to the without the consent of the general partner which may be AIMCO Operating Partnership Agreement. The general withheld at the sole discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners (1) to reflect the addition or the general partner may, without the consent of the OP substitution of limited partners or the reduction of Unitholders, amend the AIMCO Operating Partnership the capital accounts upon the return of capital to Agreement, amendments to the AIMCO Operating partners; (2) to add to the representations, duties or Partnership Agreement require the consent of the obligations of the general partner or affiliates or holders of a majority of the outstanding Common OP surrender any right or power granted to the general Units, excluding AIMCO and certain other limited partner or its affiliates herein, for the benefit of exclusions (a "Majority in Interest"). Amendments to the limited partners; (3) to cure any ambiguity, to the AIMCO Operating Partnership Agreement may be correct or supplement any provision herein which may be proposed by the general partner or by holders of a inconsistent with any other provision herein, or to add Majority in Interest. Following such proposal, the any other provisions with respect to matters or general partner will submit any proposed amendment to questions arising under your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership; and (4) to delete or add any written consent of the OP Unitholders on the proposed provision from or to your partnership's agreement of amendment or will call a meeting to vote thereon. See limited partnership requested to be so deleted or added "Description of OP Units -- Amendment of the AIMCO by any federal or state regulatory agency, which is Operating Partnership Agreement" in the accompanying deemed by such agency to be for the benefit of the Prospectus. limited partners. No amendment may be made without the consent of the affected limited partner if such amendment: (1) converts the limited partner into a general partner, (2) eliminates or decreases the limited liability of the limited partner, (3) alters the interest of a partner in the
S-62 1639 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP allocations or distributions from your partnership or (4) affects the status of your partnership as a partnership for Federal income tax purposes. Other amendments to your partnership's agreement of limited partnership must be approved by limited partnership holding a majority of the then outstanding units.
Compensation and Fees Your general partner received 10% of the Cash Available The general partner does not receive compensation for for Distribution (as defined in your partnership's its services as general partner of the AIMCO Operating agreement of limited partnership) as compensation for Partnership. However, the general partner is entitled its services as general partner and may receive to payments, allocations and distributions in its reimbursement for expenses incurred in such capacity. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations your partnership's agreement of limited partnership. is generally limited to the amount of their invest- After its capital contribution is fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner will, except as otherwise required by limitations on the liability of limited partners for applicable law, be required to make any further capital the obligations of a limited partnership have not been contributions or lend any funds to your partnership. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, your general partner has a fiduciary duty partnership agreement, Delaware law generally requires to safeguard the funds of the partnership and a general partner of a Delaware limited partnership to partnership funds may not be commingled with the funds adhere to fiduciary duty standards under which it owes of any other person except as provided in the partner- its limited partners the highest duties of good faith, ship agreement. Your general partner has a fiduciary fairness and loyalty and which generally prohibit such responsibility for the safekeeping and use of all funds general partner from taking any action or engaging in and assets of the partnership, whether or not in the any transaction as to which it has a conflict of immediate possession or control of the general partner, interest. The AIMCO Operating Partnership Agreement and the general partner may not employ, or permit expressly authorizes the general partner to enter into, another to employ, such funds or assets in any manner on behalf of the AIMCO Operating Partnership, a right except for the exclusive benefit of the partnership. of first opportunity arrangement and other conflict Your general partner may engage in or possess an avoidance agreements with various affiliates of the interest in any other business or venture of every AIMCO Operating Partnership and the general partner, on nature and description, independently or with others, such terms as the general partner, in its sole and including the ownership, financing, leasing, operation, absolute discretion, believes are advisable. The AIMCO management, brokerage and development of real property. 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
S-63 1640
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after AIMCO Oper-
S-64 1641 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the fifth anniversary of the issue ating Partnership sells or date of the Preferred OP Units. refinances its assets, the net proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; extend the term of Prospectus. So long as any institution of bankruptcy your partnership; remove or elect a Preferred OP Units are outstand- proceedings, an assignment for the general partner; and approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- retiring. Your partnership may be be necessary for effecting any ship Agreement, the general partner continued by the remaining general amendment of any of the provisions has the power to effect the partner or, if none, the limited of the Partnership Unit Desig- acquisition, sale, transfer, partners may agree to continue your nation of the Preferred OP Units exchange or other disposition of partnership by electing a successor that materially and adversely any assets of the AIMCO Operating general partner upon the vote of affects the rights or preferences Partnership (including, but not the limited partners owning a of the holders of the Preferred OP limited to, the exercise or grant majority of the units within 120 Units. The creation or issuance of of any conversion, option, days after the retirement of the any class or series of partnership privilege or subscription right or general partner. units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
S-65 1642 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations, sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and from time to time on or after in its sole and absolute discretion results and net sales or the fifth anniversary of the issue determine, of Available Cash (as refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by partnership's assets. adjust the annual distribution rate the AIMCO Operating Partnership on the Preferred OP Units to the during such quarter to the general lower of (i) % plus the annual partner, the special limited interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-66 1643 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights A limited partner may assign one or There is no public market for the There is no public market for the more whole units by a written Preferred OP Units and the OP Units. The AIMCO Operating Part- instrument in accordance with your Preferred OP Units are not listed nership Agreement restricts the partnership's agreement of limited on any securities exchange. The transferability of the OP Units. partnership, unless such assignment Preferred OP Units are subject to Until the expiration of one year or transfer would violate state restrictions on transfer as set from the date on which an OP securities law or result in the forth in the AIMCO Operating Unitholder acquired OP Units, termination of your partnership for Partnership Agreement. subject to certain exceptions, such tax purposes. In order for an OP Unitholder may not transfer all assignee to become a substituted Pursuant to the AIMCO Operating or any portion of its OP Units to limited partner the following Partnership Agreement, until the any transferee without the consent conditions must first be satisfied: expiration of one year from the of the general partner, which (1) the filing with the partnership date on which a holder of Preferred consent may be withheld in its sole of a written instrument of OP Units acquired Preferred OP and absolute discretion. After the assignment covering no less than Units, subject to certain expiration of one year, such OP five units; (2) the execution by exceptions, such holder of Unitholder has the right to the assignor and assignee of any Preferred OP Units may not transfer transfer all or any portion of its other documentation required or all or any portion of its Pre- OP Units to any person, subject to requested by the general partner; ferred OP Units to any transferee the satisfaction of certain (3) the written consent of the without the consent of the general conditions specified in the AIMCO general partner is obtained; and partner, which consent may be Operating Partnership Agreement, (4) a transfer fee covering all withheld in its sole and absolute including the general partner's reasonable expenses connected with discretion. After the expiration of right of first refusal. See such substitution is paid to the one year, such holders of Preferred "Description of OP Units -- partnership. OP Units has the right to transfer Transfers and Withdrawals" in the all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of certain After the first anniversary of conditions specified in the AIMCO becoming a holder of Common OP Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO Operating Partnership Agreement, to require After a one-year holding period, a the AIMCO Operating Partnership to holder may redeem Preferred OP redeem all or a portion of the Units and receive in exchange Common OP Units held by such party therefor, at the AIMCO Operating in exchange for a cash amount based Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1644 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1645 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1646 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1647 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1648 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1649 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1650 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1651 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1652 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 10% of your partnership's cash available for distribution for its services as general partner and may receive reimbursement for expenses generated in such capacity. The general partner received such fees and reimbursements totaling $182,000 in 1996, $239,000 in 1997 and $82,000 for the first six months of 1998. The property manager received management fees of $1,010,000 in 1996, $1,044,000 in 1997 and $534,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 1653 YOUR PARTNERSHIP GENERAL Century Properties Growth Fund XXII was organized on January 31, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following nine residential apartment complexes: Wood Creek Apartments, a 432-unit complex in Mesa, Arizona; Plantation Creek Apartments, a 484-unit complex in Atlanta, Georgia; Stoney Creek Apartments, a 364-unit complex in Dallas, Texas; Four Wind Apartments, a 350-unit complex in Overland, Kansas; Promontory Point Apartments, a 252-unit complex in Austin, Texas; Cooper's Pointe Apartments, a 192-unit complex in Charleston, South Carolina; Hampton Greens Apartments, a 309-unit complex in Dallas, Texas; Autumn Run Apartments, a 320-unit complex in Naperville, Illinois; and Copper Mill Apartments, a 192-unit complex in Richmond, Virginia. The general partner of your partnership is Fox Partners IV, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. NPI-AP Management L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 82,848 units issued and outstanding, which were held of record by 5,471 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757- 8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated September 25, 1984, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that it would sell your partnership's properties five to eight years after their acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2010, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 1654 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner is not liable to the partnership for any loss suffered by the partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Your general partner and any of its affiliates are entitled to indemnification for any liability, loss or damage incurred by them or by the partnership by reason of any act performed or omitted to be performed by them in connection with the business of the partnership, including costs and attorney's fees and any amounts expended in the settlements of any claims of liability provided that if such liability arises out of any action or inaction of the general partner such conduct did not constitute fraud, negligence or misconduct by the general partner. All judgments against the partnership and the general partner, wherein the general partner is entitled to indemnification, must first be satisfied from partnership assets before the general partner is responsible for these obligations. Notwithstanding the above paragraph, neither the general partner, nor any affiliate of the general partner or the partnership, will be indemnified from any liability incurred by them in connection with (1) any claim or settlement involving allegations that the securities laws were violated by the general partner or by any such other person unless: (a) the general partner or other persons or entities seeking indemnification are successful in defending such action, and (b) such indemnification is specifically approved by a court of law which is advised as to the current position of any relevant regulatory agencies regarding indemnification for securities law violations; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-78 1655 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 30.76 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 0.00
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 29.58% interest in your partnership, including 22,845.5 units held by us and the interest held by Fox Partners IV, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $178,000 1995........................................................ 174,000 1996........................................................ 182,000 1997........................................................ 239,000 1998 (through June 30)...................................... 82,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $ 825,000 1995........................................................ 1,011,000 1996........................................................ 1,010,000 1997........................................................ 1,044,000 1998 (through June 30)...................................... 534,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 1656 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 1657 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Century Properties Growth Fund XXII appearing in Century Properties Growth Fund XXII Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 1658 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Century Properties Growth Fund XXII Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Century Properties Growth Fund XXII (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1659 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1660 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1661 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1662
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1663
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1664
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1665
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1666 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1667 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2 IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $82.00 per unit and an affiliate estimated the net liquidation value of your units to be $82.94 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a debt obligation owed by, and secured by properties held by, Consolidated Capital Equity Properties/Two (the "Loan") to holding an interest in our large portfolio of properties. In the future, the Loan owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1668 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Consolidated Capital Institutional Properties/2......... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 1669
PAGE ---- Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1670 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Consolidated Capital Institutional Properties/2. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1671 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1672 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $1.65 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in the Loan to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1673 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $5.12 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $82.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $82.94 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the Loan, your partnership's sole property, by estimating the value of the property owned by Consolidated Capital Equity Properties/Two ("CCEP/2") using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. S-4 1674 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires you to tender a minimum of 20 units (except for IRAs and Keogh Plans). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1675 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1676 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. S-7 1677 Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's Loan may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's Loan, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $82 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $82.94 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $5.12 per unit to $100 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 1678 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns the Loan to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 1679 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 1680 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 1681 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 21.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 1682 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 1683 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 1684 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 1685 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. The Loan held by your partnership is not typical of the kinds of loans traded in the secondary markets since it is non-recourse; therefore, we believe the conventional loan valuation analysis is probably not a realistic approach to valuation. We believe a purchaser of the Loan more likely would view the Loan as approximately equivalent to the value of the properties less third party mortgages, of CCEP/2, which secure the principal amount of the Loan, because the outstanding principal amount of the Loan, approximately $240,084,000 as of March 31, 1998 (including interest accrued and added to principal pursuant to the terms of the Loan) exceeds our estimate of the gross property value of the properties, less accumulated depreciation, of CCEP/2 ($38,577,000 as of June 30, 1998). We estimated the value of each property owned by CCEP/2 using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1686 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $5.12 to $100 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1687 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services but may receive reimbursement for expenses incurred in its capacity as general partner of your partnership. The general partner of your partnership received total fees and reimbursement of $149,000 during the first six months of 1998. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Consolidated Capital Institutional Properties/2 was organized on April 12, 1983, under the laws of the State of California. Your partnership was formed for the purpose of making loans to a predecessor partnership of CCEP/2. CCEP/2's indebtedness in respect of the loans made to it and its predecessor partnership by your partnership now is represented by the Loan. The Loan is secured by deeds of trust or mortgages on the CCEP/2 properties. The non-recourse provisions of the Loan mean that CCEP/2's obligation to repay the Loan is S-18 1688 secured only by the value of the properties of CCEP/2, and your partnership has no right to make further claims against CCEP/2 other than to the extent of the value of those properties. The loan agreement provides that interest on the outstanding principal balance accrues at a fixed rate (10% per year), although such interest is payable only to the extent CCEP/2 has "excess cash flow" (generally defined as net cash flow from operations after third-party debt service and capital improvements). Accrued unpaid interest is added to principal. At March 31, 1998, the aggregate outstanding principal balance of the Loan (including interest accrued and added to principal pursuant to the terms of the Loan) was approximately $240,084,000. This amount is substantially greater than the estimated fair market value of the CCEP/2 properties (which are the only source of repayment for the Loan). Under the terms of the Loan, any net proceeds from sales or refinancings of the CCEP/2 properties are paid to the partnership, after payment of a 3% disposition fee to the general partner of CCEP/2. The amount of cash flow received by your partnership pursuant to the terms of the Loan depends heavily on the discretion exercised by the general partner of CCEP/2 with respect to sales, refinancing of, or obtaining financing on, any CCEP/2 property. CCEP/2's investment portfolio currently consists of six office buildings and four residential apartment complexes, all of which serve as collateral for the Loan. The deeds of trust in favor of your partnership that encumber the CCEP/2 properties are subordinated to the mortgage liens in favor of unaffiliated third parties that secure an aggregate indebtedness of $32,764,720 (as of June 30, 1998). Those properties are as follows: a 115,829 square-foot commercial complex in Southfield, Michigan; a 101,823 square-foot commercial complex in Southfield, Michigan; a 64,762 square-foot commercial complex in Southfield, Michigan; a 173,991 square-foot commercial complex in Southfield, Michigan; a 262,457 square-foot commercial complex in Richmond, Virginia; a 159,416 square-foot commercial complex in Santa Ana, California; a 90-unit residential apartment complex in Littleton, Colorado; a 176-unit residential apartment complex in Woodbridge, Illinois; a 330-unit residential apartment complex in Cincinnati, Ohio; and a 257-unit residential apartment complex in Houston, Texas. Your partnership's sole investment property was sold in September 1996, and, therefore, your partnership has no real estate assets. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. ConCap Holdings, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by CCEP/2. ConCap Holdings, Inc., an affiliate of your general partner and the sole general partner of CCEP/2, has full discretion in conducting CCEP/2's business. As of September 15, 1998, there were 909,133.8 units of limited partnership interest issued and outstanding, which were held of record by 34,705 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1689 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1690
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1691 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1692
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1693 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1694 SUMMARY FINANCIAL INFORMATION OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2 The summary financial information of Consolidated Capital Institutional Properties/2 for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Consolidated Capital Institutional Properties/2 for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $28,966 $ 920 $ 6,755 $ 2,070 $ 4,065 Net Income (Loss)........................................... 28,622 654 5,275 (579) (2,616) Net Income (Loss) per limited partnership unit.............. 31.17 0.71 6.83 (0.63) (2.85) Distributions per limited partnership unit.................. 1.65 10.98 10.98 -- 3.27
JUNE 30, DECEMBER 31, ------------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $ -- $ -- $ -- $ -- 2,018 Total Assets................................................ 78,074 45,316 50,906 54,636 55,494 Notes Payable............................................... -- -- -- -- -- Partners' Capital (Deficit)................................. 77,872 45,128 50,749 54,466 55,045
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
CONSOLIDATED CAPITAL AIMCO OPERATING INSTITUTIONAL PARTNERSHIP PROPERTIES/2 ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding.................... $1.125 $1.85 $1.65 $10.98
S-25 1695 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $5.12 per unit to $100.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $82.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. The Loan may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of the Loan, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net liquidation value of your units to be $82.94 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of the Loan by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 1696 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. The sole property your partnership owns is the Loan. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 1697 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $1.65 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 1698 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a majority owned subsidiary of AIMCO. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in ConCap Holdings, Inc., which manages the properties owned by Consolidated Capital Equity Properties/Two, which owns the properties securing the Loan. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 21.4% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 1699 Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In December 1997, Reedy River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 169.105.3 units (representing approximately 18.6% of the number outstanding) at a cash purchase price of $40 per unit in December 15, 1997. Cooper River Properties, LLC., then an affiliate of Insignia and now our affiliate, completed a tender offer for $50 per unit and purchased shares in , 1998. Madison Partnership Liquidity Investors 64, LLC, which is unaffiliated with Insignia and with AIMCO, completed a tender offer for $40 per unit and purchased shares in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the S-30 1700 partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the S-31 1701 opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1702 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1703 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 20 units (except units held by IRAs and Keogh Plans. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 1704 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1705 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1706 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1707 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1708 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1709 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1710 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1711 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 201,904.5 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 22.2% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1712 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1713 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1714 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1715 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1716 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1717 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. The Loan held by your partnership is not typical of the kinds of loans traded in the secondary markets since it is non-recourse; therefore, we believe the conventional loan valuation analysis is probably not a realistic approach to valuation. We believe a purchaser of the Loan more likely would view the Loan as approximately equivalent to the value, less third party mortgages of the properties, of CCEP/2, which secure principal amount of the Loan, because the outstanding principal amount of the Loan, approximately $240,084,000 as of March 31, 1998 (including interest accrued and added to principal pursuant to the terms of the Loan exceeds our estimate of the gross property value of the properties, less accumulated depreciation, of CCEP/2 ($38,577,000 as of June 30, 1998). For this purpose, we estimated the value of each property owned by CCEP/2 using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by CCEP/2 using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-48 1718 multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Canyon Crest Apartments.................. $ % $ Highcrest Townhomes Apartments........... Village Brook Apartments................. Windmere Apartments...................... Central Park Place....................... Central Park Plaza....................... Crescent Center.......................... Lahser Center I and II................... Richmond Plaza........................... Town Center Place........................
- Second, we calculated the value of the equity of CCEP/2 by adding to the aggregate gross property value of all properties owned by your partnership, and deducting the mortgage debt owed by CCEP/2 after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. S-49 1719 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would S-50 1720 receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $1.65 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions S-51 1721 analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $5.12 to $100.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to June 30, 1998 an aggregate of 35,696 units (representing less than 4% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. S-52 1722 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2 REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter.................................... $13.50 $ 52.03 (c) (c) Second Quarter................................... 10.00 81.68 $30.00 $43.00 First Quarter.................................... 12.50 44.20 37.00 44.00 Fiscal Year Ended December 31, 1997: Fourth Quarter................................... 1.00 100.00 11.00 37.00 Third Quarter.................................... 6.62 45.25 22.00 40.00 Second Quarter................................... 5.12 100.00 17.00 35.00 First Quarter.................................... 9.75 54.50 30.00 48.00 Fiscal Year Ended December 31, 1996: Fourth Quarter................................... 8.88 100.00 30.00 46.00 Third Quarter.................................... 11.62 110.00 23.00 45.00 Second Quarter................................... 0.13 92.00 -- -- First Quarter.................................... 0.25 105.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve S-53 1723 additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Certain of CCEP/2's properties have been appraised in the past several years by independent, third party appraisers (either Koeppel Tener Real Estate Services, Inc. ("KTR") or Joseph J. Blake & Associates, Inc. ("Blake")) in connection with the initial financings obtained on those properties. According to the appraisal reports, the scope of the appraisals included in an inspection of each property and an analysis of the respective surrounding markets. In each case, the applicable independent appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market values of the fee simple estate of each of the CCEP/2 properties specified in the most recent appraisal reports for the CCEP/2 properties that have been appraised within the past three years are set forth in the table below, and copies of the summaries of those appraisals have been filed as exhibits to AIMCO Operating Partner's Tender Offer Statement on Schedule 14D-1 filed with the SEC.
APPRAISED DATE OF PROPERTY NAME VALUE APPRAISAL APPRAISER - ------------- ---------- --------- --------- Canyon Crest................................................ $3,800,000 4/23/96 Blake Highcrest Townhomes......................................... $8,250,000 4/12/96 KTR Windemere................................................... $6,250,000 4/30/96 KTR
General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by a party unaffiliated party in July 1998. Your general partner's estimate of your partnership's net asset value per unit as of June 30, 1998 was $82 per unit. Your general partner estimates net asset value based on a hypothetical sale of all of the CCEP/2 properties and the distribution to the limited partners and the general partner of the proceeds of such sales, net of related indebtedness and transaction costs, together with your partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of your partnership's other known liabilities. The net asset value estimate prepared by the general partner does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, we believe that the general partner's estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the CCEP/2 properties were sold and your partnership was liquidated. For this reason, we considered your general partner's net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." S-54 1724 ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-K filed with the SEC for the years ending December 31, 1995, 1996 and 1997, and the quarterly report on Form 10-Q for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, S-55 1725 number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your S-56 1726 partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. S-57 1727 Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 1728 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2013. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to lend funds in The purpose of the AIMCO Operating Partnership is to return for participating notes secured by deeds of conduct any business that may be lawfully conducted by trust on real properties as may from time to time be a limited partnership organized pursuant to the acquired by those specified in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership. Subject to restric- amended from time to time, or any successor to such tions contained in your partnership's agreement of statute) (the "Delaware Limited Partnership Act"), limited partnership including that your partnership may provided that such business is to be conducted in a not purchase real property, directly or indirectly, manner that permits AIMCO to be qualified as a REIT, your partnership may perform all acts necessary, unless AIMCO ceases to qualify as a REIT. The AIMCO advisable or convenient to the business of your Operating Partnership is authorized to perform any and partnership. 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.
S-59 1729 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 1,600,020 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner and its affiliates may funds or other assets to its subsidiaries or other acquire units from time to time on their own behalf and persons in which it has an equity investment, and such for their own benefit, provided that such right does persons may borrow funds from the AIMCO Operating not create any preferences in rights or benefits in Partnership, on terms and conditions established in the favor of such persons or permit them to buy units other sole and absolute discretion of the general partner. To than at the same cash price and on the same terms as the extent consistent with the business purpose of the are available to other non-affiliated limited partners. AIMCO Operating Partnership and the permitted Your partnership may not make any loans to the general activities of the general partner, the AIMCO Operating partner but the general partner may lend money to your Partnership may transfer assets to joint ventures, partnership on terms, as to interest rates and other limited liability companies, partnerships, finance charges and fees, not in excess of amount that corporations, business trusts or other business are charged by unrelated banks on comparable loans for entities in which it is or thereby becomes a the same purpose, and, if a property is involved, in participant upon such terms and subject to such the locality of the property. No prepayment charge or conditions consistent with the AIMCO Operating Part- penalty will be required by the general partner on a nership Agreement and applicable law as the general loan to your partnership. To the extent the general partner, in its sole and absolute discretion, believes partner lends proceeds to your partnership, on an to be advisable. Except as expressly permitted by the unsecured basis, such amounts will bear interest at an AIMCO Operating Partnership Agreement, neither the amount not to exceed the lesser of the actual cost to general partner nor any of its affiliates may sell, the general partner or the most recent prime rate of transfer or convey any property to the AIMCO Operating interest charged by Bank of America, N.A., San Partnership, directly or indirectly, except pursuant to Francisco main office, in effect on the date such loan transactions that are determined by the general partner if first created. The general partner may not cause in good faith to be fair and reasonable. your partnership to enter into any agreements with the general partner or its affiliates which are not be subject to termination without penalty by either party upon not more than sixty days' written notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. Your partnership may not incur any non-recourse indebtedness wherein the lender will have or acquire, at any time, capital or property of your partnership except as a secured creditor.
S-60 1730 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to partner, any officer or director of general partner or indemnification by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal (whether or not the same
S-61 1731 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP proceeds to judgment or is settled or otherwise brought fees), fines, settlements and other amounts incurred in to a conclusion) relating to the performance or connection with any actions relating to the operations non-performance of any act concerning the activities of of the AIMCO Operating Partnership, as set forth in the your partnership except in the case where the general AIMCO Operating Partnership Agreement. The Delaware partner or its affiliates or agents are guilty of bad Limited Partnership Act provides that subject to the faith, negligence, misconduct or reckless disregard of standards and restrictions, if any, set forth in its duty, provided such act or omission was done in good partnership agreement, a limited partnership may, and faith to promote the best interests of your shall have the power to, indemnify and hold harmless partnership. The indemnification authorized by your any partner or other person from and against any and partnership's agreement of limited partnership includes all claims and demands whatsoever. It is the position the payment of reasonable attorneys' fees and other of the Securities and Exchange Commission that expenses (not limited to taxable costs) incurred in indemnification of directors and officers for settling or defending any claims, threatened action or liabilities arising under the Securities Act is against finally adjudicated legal proceedings. Notwithstanding public policy and is unenforceable pursuant to Section the foregoing, neither the general partner nor any 14 of the Securities Act of 1933. officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners holding a majority of has exclusive management power over the business and the outstanding units may only remove a general partner affairs of the AIMCO Operating Partnership. The general with the general partner's prior written consent. The partner may not be removed as general partner of the holders of a majority of the outstanding units may AIMCO Operating Partnership by the OP Unitholders with elect a successor general partner. No limited partner or without cause. Under the AIMCO Operating Partnership may substitute a transferee of his units in such Agreement, the general partner may, in its sole limited partner's place without the consent of the discretion, prevent a transferee of an OP Unit from general partner which may be withheld at the sole becoming a substituted limited partner pursuant to the discretion of the general partner. 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 Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with federal holders of a majority of the outstanding Common OP and state securities laws and to cure any ambiguities. Units, excluding AIMCO and certain other limited Other amendments to your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership must be approved by the limited the AIMCO Operating Partnership Agreement may be partners owning more than 50% of the units. However, proposed by the general partner or by holders of a the limited partners may not amend your partnership's Majority in Interest. Following such proposal, the agreement of limited partnership (1) to extend your general partner will submit any proposed amendment to partnership term or (2) to alter the rights of the the OP Unitholders. The general partner will seek the general partner to receive compensation, return of written consent of the OP Unitholders on the proposed invested capital, allocations, and distributions, amendment or will call a meeting to vote thereon. See without the consent of the general partner. Also, a "Description of OP Units -- Amendment of the AIMCO unanimous vote of the limited partners is required to Operating Partnership amend the provision in your
S-62 1732 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership's agreement of limited partnership dealing Agreement" in the accompanying Prospectus. with substituted limited partners.
Compensation and Fees Your general partner will receive no fee for its The general partner does not receive compensation for services as general partner of your partnership but may its services as general partner of the AIMCO Operating receive reimbursement for expenses incurred in such Partnership. However, the general partner is entitled capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, general Operating Partnership Agreement expressly limits the partner and its affiliates may engage in whatever liability of the general partner by providing that the activities they choose, whether the same are general partner, and its officers and directors will competitive with your partnership or otherwise, without not be liable or accountable in damages to the AIMCO having or incurring any obligation to offer any Operating Partnership, the limited partners or interest in such activities to your partnership or any assignees for errors in judgment or mistakes of fact or limited partner. law or of any act or omission if the general partner or such director or officer acted in good faith.
S-63 1733 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and
S-64 1734 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner; and approve other Preferred OP Units are outstand- proceedings, an assignment for the matters as otherwise provided in ing, in addition to any other vote benefit of creditors and certain your partnership's agreement of or consent of partners required by transfers by the general partner of limited partnership. Unless prior law or by the AIMCO Operating its interest in the AIMCO Operating consent of the limited partners Partnership Agreement, the Partnership or the admission of a holding a majority of the units of affirmative vote or consent of successor general partner. your partnership is obtained, the holders of at least 50% of the general partner is prohibited from outstanding Preferred OP Units will Under the AIMCO Operating Partner- (1) selling substantially all of be necessary for effecting any ship Agreement, the general partner your partnership's assets in a amendment of any of the provisions has the power to effect the single sale or in multiple sales in of the Partnership Unit Desig- acquisition, sale, transfer, the same 12-month period, except in nation of the Preferred OP Units exchange or other disposition of the orderly liquidation and winding that materially and adversely any assets of the AIMCO Operating up of the business, (2) pledging affects the rights or preferences Partnership (including, but not the credit of your partnership in of the holders of the Preferred OP limited to, the exercise or grant any way except in the ordinary Units. The creation or issuance of of any conversion, option, course of business, (3) executing any class or series of partnership privilege or subscription right or or delivering any assignment for units, including, without any other right available in the benefit of the creditors of limitation, any partnership units connection with any assets at any your partnership, and (4) that may have rights senior or time held by the AIMCO Operating releasing, assigning or superior to the Preferred OP Units, Partnership) or the merger, transferring a partnership claim, shall not be deemed to materially consolidation, reorganization or security, commodity or any other adversely affect the rights or other combination of the AIMCO asset in your partnership without preferences of the holders of Operating Partnership with or into full and adequate consideration. Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. A general partner may cause the scribed voting rights, each dissolution of your partnership by Preferred OP Units shall have one The general partner may cause the retiring. Your partnership may be (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating continued by the remaining general Partnership by an "event of partner or, if none, the limited withdrawal," as defined in the partners may agree to continue your Delaware Limited Partnership Act partnership by electing a successor (including, without limitation, general partner upon the vote of bankruptcy), unless, within 90 days holders of more than 50% of the after the withdrawal, holders of a units within 60 days after the "majority in interest," as defined retirement of the general partner. in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash availa- declared the
S-65 1735 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ble for distribution, whether by the board of directors of the AIMCO Operating Partnership Agree- arising from operations or sales or general partner of the AIMCO ment requires the general partner refinancing, is to be shared among Operating Partnership, quarterly to cause the AIMCO Operating the partners. Distributions of cash distributions at the rate of Partnership to distribute quarterly Distributable Cash From Operations $ per Preferred OP Unit; all, or such portion as the general are to be made quarterly during the provided, however, that at any time partner may in its sole and abso- fiscal year. The distributions and from time to time on or after lute discretion determine, of payable to the partners are not the fifth anniversary of the issue Available Cash (as defined in the fixed in amount and depend upon the date of the Preferred OP Units, the AIMCO Operating Partnership operating results and net sales or AIMCO Operating Partnership may Agreement) generated by the AIMCO refinancing proceeds available from adjust the annual distribution rate Operating Partnership during such the disposition of your on the Preferred OP Units to the quarter to the general partner, the partnership's assets. lower of (i) % plus the annual special limited partner and the interest rate then applicable to holders of Common OP Units on the U.S. Treasury notes with a maturity record date established by the of five years, and (ii) the annual general partner with respect to dividend rate on the most recently such quarter, in accordance with issued AIMCO non-convertible their respective interests in the preferred stock which ranks on a AIMCO Operating Partnership on such parity with its Class H Cumu- record date. Holders of any other lative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may not sell, There is no public market for the There is no public market for the transfer, encumber or otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- dispose by operation of law or Preferred OP Units are not listed nership Agreement restricts the otherwise of the whole or any part on any securities exchange. The transferability of the OP Units. of his interest in your partnership Preferred OP Units are subject to Until the expiration of one year except by written instrument restrictions on transfer as set from the date on satisfactory
S-66 1736 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS in form to the general partner, forth in the AIMCO Operating which an OP Unitholder acquired OP accompanied by the assurance of the Partnership Agreement. Units, subject to certain genuineness and effectiveness of exceptions, such OP Unitholder may each such signature and the Pursuant to the AIMCO Operating not transfer all or any portion of obtaining of any federal and/or Partnership Agreement, until the its OP Units to any transferee state governmental approval, if expiration of one year from the without the consent of the gen- any, as may be reasonably required date on which a holder of Preferred eral partner, which consent may be by the general partner. A minimum OP Units acquired Preferred OP withheld in its sole and absolute of twenty units may be transferred, Units, subject to certain discretion. After the expiration of except for IRA or Keogh plans, and exceptions, such holder of one year, such OP Unitholder has except for transfers by gift or Preferred OP Units may not transfer the right to transfer all or any inheritance, intrafamily transfers, all or any portion of its Pre- portion of its OP Units to any family dissolutions and transfers ferred OP Units to any transferee person, subject to the satisfaction to affiliates. No assignment is without the consent of the general of certain conditions specified in valid or effective unless it is in partner, which consent may be the AIMCO Operating Partnership compliance with the conditions con- withheld in its sole and absolute Agreement, including the general tained in your partnership's discretion. After the expiration of partner's right of first refusal. agreement of limited partnership. one year, such holders of Preferred See "Description of OP Units -- No partner may make any assignment OP Units has the right to transfer Transfers and Withdrawals" in the of all or any part of his interest all or any portion of its Preferred accompanying Prospectus. if said transfer or assignment OP Units to any person, subject to would, when considered with all the satisfaction of certain After the first anniversary of other transfers made during the conditions specified in the AIMCO becoming a holder of Common OP same applicable 12-month period, Operating Partnership Agreement, Units, an OP Unitholder has the cause a termination of your including the general partner's right, subject to the terms and partnership for federal or any right of first refusal. conditions of the AIMCO Operating applicable state income tax Partnership Agreement, to require purposes. Such transferee may be After a one-year holding period, a the AIMCO Operating Partnership to substituted as a limited partner holder may redeem Preferred OP redeem all or a portion of the if, in addition to the above re- Units and receive in exchange Common OP Units held by such party quirements: (1) the assignor therefor, at the AIMCO Operating in exchange for a cash amount based designates such intention in the Partnership's option, (i) subject on the value of shares of Class A instrument of assignment, (2) the to the terms of any Senior Units, Common Stock. See "Description of written consent of the general cash in an amount equal to the OP Units -- Redemption Rights" in partner is obtained, the granting Liquidation Preference of the the accompanying Prospectus. Upon of which is in the general Preferred OP Units tendered for receipt of a notice of redemption, partner's sole discretion and in redemption, (ii) a number of shares the AIMCO Operating Partnership accordance with your partnership's of Class I Cumulative Preferred may, in its sole and absolute agreement of limited partnership, Stock of AIMCO that pay an discretion but subject to the (3) the assignment instrument is in aggregate amount of dividends yield restrictions on the ownership of form and substance satisfactory to equivalent to the distributions on Class A Common Stock imposed under the general partner, (4) the the Preferred OP Units tendered for AIMCO's charter and the transfer assignor and assignee duly execute redemption and are part of a class restrictions and other limitations and acknowledge such other or series of preferred stock that thereof, elect to cause AIMCO to instrument or instruments as the is then listed on the New York acquire some or all of the tendered general partner may deem necessary Stock Exchange or another national Common OP Units in exchange for or desirable and (5) the assignee securities exchange, or (iii) a Class A Common Stock, based on an accepts, adopts and approves in number of shares of Class A Common exchange ratio of one share of writing all of the terms and Stock of AIMCO that is equal in Class A Common Stock for each Com- provisions of your partnership's Value to the Liquidation Preference mon OP Unit, subject to adjustment agreement of limited partnership. of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1737 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1738 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1739 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1740 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1741 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1742 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1743 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1744 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1745 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and that of CCEP/2 and the manager of your partnership's property and the manager of CCEP/2's property. The general partner of your partnership receives no fee for its services but may receive reimbursement for expenses incurred in its capacity as general partner of your partnership. The general partner of your partnership received reimbursement of $340,000 in 1996, $278,000 in 1997 and $149,000 during the first six months of 1998. The general partner of CCEP/2 Concap Holdings, Inc., received $763,000 in 1996, $830,000 in 1997 and $384,000 for the first six months of 1998. ConCap Holdings, Inc., as property manager of CCEP/2 also received fees of $883,000 in 1996, $881,000 in 1997 and $440,000 for the first six months of 1998. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans S-76 1746 may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. YOUR PARTNERSHIP GENERAL Consolidated Capital Institutional Properties/2 was organized on April 12, 1983, under the laws of the State of California. Your partnership was formed for the purpose of making loans to a predecessor partnership of CCEP/2. CCEP/2's indebtedness in respect of the loans made to it and its predecessor partnership by your partnership now is represented by the Loan. The Loan is secured by deeds of trust or mortgages on the CCEP/2 properties. The non-recourse provisions of the Loan mean that CCEP/2's obligation to repay the Loan is secured only by the value of the properties of CCEP/2, and your partnership has no right to make further claims against CCEP/2 other than to the extent of the value of those properties. The loan agreement provides that interest on the outstanding principal balance accrues at a fixed rate (10% per year), although such interest is payable only to the extent CCEP/2 has "excess cash flow" (generally defined as net cash flow from operations after third-party debt service and capital improvements). Accrued unpaid interest is added to principal. At March 31, 1998, the aggregate outstanding principal balance of the Loan (including interest accrued and added to principal pursuant to the terms of the Loan) was approximately $240,084,000. This amount is substantially greater than the estimated fair market value of the CCEP/2 properties (which are the only source of repayment for the Loan). Under the terms of the Loan, any net proceeds from sales or refinancings of the CCEP/2 properties are paid to the partnership, after payment of a 3% disposition fee to the general partner of CCEP/2. The amount of cash flow received by your partnership pursuant to the terms of the Loan depends heavily on the discretion exercised by the general partner of CCEP/2 with respect to sales, refinancing of, or obtaining financing on, any CCEP/2 property. CCEP/2's investment portfolio currently consists of six office buildings and four residential apartment complexes, all of which serve as collateral for the Loan. The deeds of trust in favor of your partnership that encumber the CCEP/2 properties are subordinated to the mortgage liens in favor of unaffiliated third parties that secure an aggregate indebtedness of $32,764,720 (as of June 30, 1998). Those properties are as follows: a 115,829 square-foot commercial complex in Southfield, Michigan; a 101,823 square-foot commercial complex in Southfield, Michigan; a 64,762 square-foot commercial complex in Southfield, Michigan; a 173,991 square-foot commercial complex in Southfield, Michigan; a 262,457 square-foot commercial complex in Richmond, Virginia; a 159,416 square-foot commercial complex in Santa Ana, California; a 90-unit residential apartment complex in Littleton, Colorado; a 176-unit residential apartment complex in Woodbridge, Illinois; a 330-unit residential apartment complex in Cincinnati, Ohio; and a 257-unit residential apartment complex in Houston, Texas. Your partnership's sole investment property was sold in September 1996, and, therefore, your partnership has no real estate assets. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. ConCap Holdings, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by Consolidated Capital Equity Properties/Two. ConCap Holdings, Inc., an affiliate of your general partner and the sole general partner of CCEP/2, has full discretion in conducting CCEP/2's business. As of February 28, 1998, there were 909,133.8 units of limited partnership interest issued and outstanding, which were held of record by 34,705 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. S-77 1747 ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-K for the year ended December 31, 1997; - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP Your partnership was formed for the purpose of making loans to a predecessor partnership of Consolidated Capital Equity Properties/Two. Consolidated Capital Equity Properties/Two's indebtedness in respect of the loans made to it and its predecessor partnership by your partnership is represented by the Loan, which is secured by properties of Consolidated Capital Equity Properties/Two. According to the prospectus, dated July 22, 1983, Equity Partners/Two (Consolidated Capital Equity Properties/Two's predecessor in interest) anticipated that it would sell and/or refinance its properties, and consequently repay the loan, approximately 12 years (subject to its right to extend the loan up to two additional years beyond its initial ten-year term) after their acquisition, depending on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT CCEP/2's partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates CCEP/2's property, establishes rental policies and rates and directs marketing S-78 1748 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Notwithstanding the foregoing, neither the general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnification for violations of securities laws, or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership must at all times maintain public liability insurance in amounts determined by the general partner for the protection of your partnership and cash of its members. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $255.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 3.27 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 10.98 January 1, 1998 - June 30, 1998............................. 1.65
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 21.2% interest in your partnership, including 909,133.8 units held by us and the interest held by ConCap Equities, Inc., as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, S-79 1749 (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received reimbursement for expenses in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $325,000 1995........................................................ 480,000 1996........................................................ 340,000 1997........................................................ 278,000 1998 (through June 30)...................................... 149,000
ConCap Holdings, Inc. as general partner of CCEP/2 received compensation as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 968,000 1995........................................................ 1,021,000 1996........................................................ 763,000 1997........................................................ 830,000 1998 (through June 30)...................................... 384,000
In addition, ConCap Holdings, Inc., a majority-owned subsidiary of AIMCO manages the property of CCEP/2. CCEP/2 has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $511,000 1995........................................................ 853,000 1996........................................................ 883,000 1997........................................................ 881,000 1998 (through June 30)...................................... 440,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 1750 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 1751 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Consolidated Capital Institutional Properties/2 appearing in Consolidated Capital Institutional Properties/2 Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 1752 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-K filed with the Securities and Exchange Commission for the years ended December 31, 1995, 1996 and 1997, and quarterly report on Form 10-Q for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1753 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1754 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1755 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1756
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1757
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1758
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1759
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1760 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1761 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $158.00 per unit and an affiliate estimated the net liquidation value of your units to be $156.61 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1762 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Consolidated Capital Institutional Properties/3......... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 1763
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1764 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Consolidated Capital Institutional Properties/3. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1765 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1766 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $36.13 per unit for the year ended December 31, 1997 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1767 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $134.03 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $158.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $156.61 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100.00 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1768 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 20 units (except for IRA Keogh Plans, and except for transfers by gift or inheritance, intrafamily transfers, family dissolutions and transfers to affiliates.) Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1769 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1770 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1771 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $158.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $156.61 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $134.03 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 1772 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 1773 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 1774 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 1775 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 25.1% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 1776 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 1777 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-14 1778 Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1779 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1780 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $20.00 to $134.03 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1781 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee of up to 9% of Distributed Cash From Operations received by the limited partners for its services as general partner of your partnership and may receive reimbursement for expenses incurred in such capacity. Your general partner was paid $187,000 in compensation and reimbursements for the first six months of 1998. The property manager received management fees of $384,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Consolidated Capital Institutional Properties/3 was organized on May 23, 1984 under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 1782 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of (a) 1661 apartment units in 8 properties located in Washington, Florida, Michigan, Utah, North Carolina, and Colorado and (b) two commercial office buildings, with total square feet of 277,000, in Florida and California. One of the properties, City Heights Apartments, is currently under contract to be sold to an unaffiliated party in November 1998. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998 there were 91,557.20 units of limited partnership interest issued and outstanding, which were held of record by 15,364 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1783 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1784
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1785 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1786
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1787 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1788 SUMMARY FINANCIAL INFORMATION OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 The summary financial information of Consolidated Capital Institutional Properties/3 for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Consolidated Capital Institutional Properties/3 for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED (UNAUDITED) DECEMBER 31, ----------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT FOR UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 7,740 $ 7,488 $15,173 $14,047 $12,708 Net Income (Loss)........................................... 1,446 1,074 1,936 1,153 (1,606) Net Income (Loss) per limited partnership unit.............. 3.74 2.78 5.00 2.98 (4.20) Distributions per limited partnership unit.................. -- 18.27 36.13 18.98 9.42 ------- ------- ------- ------- -------
JUNE 30, DECEMBER 31, ----------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $47,126 $48,510 $47,852 $49,187 $45,877 Total Assets................................................ 58,571 63,407 57,086 69,537 62,863 Notes Payable............................................... 30,525 30,525 30,525 30,525 18,029 Partners' Capital........................................... 26,671 31,365 25,225 37,296 43,461
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CONSOLIDATED CAPITAL PARTNERSHIP INSTITUTIONAL PROPERTIES/3 ------------------------- --------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ----------- ------------- Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $36.13
S-25 1789 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20.00 per unit to $134.03 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $158.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $156.61 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1790 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 1791 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $36.13 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 1792 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 25.1% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 1793 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. During the first quarter of 1998, Insignia Properties, LP, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired an additional 47,865.5 units (representing approximately 12.3% of the number outstanding) at a cash purchase price of $85.00 per unit on February 27, 1998. Madison Partnership Liquidity Investors 64, L.L.C., which is unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $65.00 per unit and purchased shares in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 1794 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 1795 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1796 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1797 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. However, your partnership's agreement of limited partnership requires that you tender a minimum of 20 units (except for IRA or Keogh plans). Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 1798 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1799 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1800 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1801 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1802 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1803 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1804 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1805 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 46,772.20 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 12.21% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1806 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1807 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1808 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1809 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1810 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1811 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Cedar Rim Apartments................. $ % $ City Heights Apartments.............. Hidden Cove by the Lake Apartments... Lamplighter Park Apartments.......... Park Capitol Apartments.............. Tamarac Village I,II,III,IV.......... Williamsburg Manor Apartments........ Sandpiper I & II Apartments.......... South City Business Center........... Corporate Center.....................
S-48 1812 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. S-49 1813 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would S-50 1814 receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $36.13 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions S-51 1815 analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $20.00 to $134.03 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 115,893 units (representing approximately 30.25% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in December 1997 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. S-52 1816 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $55.00 $ 97.00 (c) (c) Second Quarter.................................. 34.00 97.00 $78.00 $ 97.00 First Quarter................................... 43.00 120.00 80.00 97.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 42.00 97.00 77.00 97.00 Third Quarter................................... 31.00 102.00 78.00 97.00 Second Quarter.................................. 21.00 111.00 71.00 100.00 First Quarter................................... 20.00 102.00 80.00 112.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 25.00 100.00 92.00 112.00 Third Quarter................................... 12.00 105.00 75.00 112.00 Second Quarter.................................. 14.32 100.00 -- -- First Quarter................................... 55.12 91.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve S-53 1817 additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Certain of your partnership's properties have been appraised in the past several years by independent, third party appraisers (Joseph J. Blake & Associates, Inc. ("Blake") or Koeppel Tener Real Estate Services, Inc. ("KTR")). According to the appraisal reports, the scope of the appraisals included an inspection of each property and an analysis of the respective surrounding markets. In each case, the applicable independent appraiser relied principally on the income capitalization approach to the valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market values of the fee simple estate of each of your partnership's properties specified in the most recent appraisal reports for your partnership's properties which have been appraised within the past three years are set forth in the table below, and copies of the summaries of those appraisals have been filed as exhibits to the Purchaser's Tender Offer Statement on Schedule 14D-1 filed with the SEC.
APPRAISED DATE OF PROPERTY NAME VALUE APPRAISAL APPRAISER ------------- ----------- --------- --------- Cedar Rim Apartments....................................... $ 4,500,000 04/26/96 Blake City Heights Apartments.................................... $ 5,200,000 04/15/96 Blake Hidden Cove by the Lake Apartments......................... $ 4,650,000 04/12/96 KTR Lamplighter Park Apartments................................ $ 7,600,000 04/15/96 Blake Park Capitol Apartments.................................... $ 5,200,000 11/07/95 Blake Tamarac Village Apartments I, II, III, IV.................. $19,000,000 04/23/96 Blake Williamsburg Manor Apartments.............................. $ 7,900,000 11/07/95 Blake Sandpiper Apartments I & II................................ $ 7,800,000 10/15/95 Blake
General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in July 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $158. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the S-54 1818 AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. S-55 1819 SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-K filed with the SEC for the years ending December 31, 1995, 1996 and 1997, and the quarterly report on Form 10-Q for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improve- S-56 1820 ments, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; S-57 1821 (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 1822 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2015. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus. Purpose and Permitted Activities Your partnership has been formed to lend funds in The purpose of the AIMCO Operating Partnership is to return for participating notes secured by deeds of conduct any business that may be lawfully conducted by trust on real properties as may from time to time be a limited partnership organized pursuant to the acquired by those specified in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership. Subject to restric- amended from time to time, or any successor to such tions contained in your partnership's agreement of statute) (the "Delaware Limited Partnership Act"), limited partnership including the prohibition against provided that such business is to be conducted in a purchasing real property, directly or indirectly, your manner that permits AIMCO to be qualified as a REIT, partnership may perform all acts necessary, advisable unless AIMCO ceases to qualify as a REIT. The AIMCO or convenient to the business of your partnership. 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.
S-59 1823 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 1,600,020 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner and its affiliates may funds or other assets to its subsidiaries or other acquire units from time to time on their own behalf and persons in which it has an equity investment, and such for their own benefit, provided that such right does persons may borrow funds from the AIMCO Operating not create any preferences in rights or benefits in Partnership, on terms and conditions established in the favor of such persons or permit them to buy units other sole and absolute discretion of the general partner. To than at the same cash price and on the same terms as the extent consistent with the business purpose of the are available to other non-affiliated limited partners. AIMCO Operating Partnership and the permitted Your partnership may not make any loans to the general activities of the general partner, the AIMCO Operating partner but the general partner may lend money to your Partnership may transfer assets to joint ventures, partnership on terms, as to interest rates and other limited liability companies, partnerships, finance charges and fees, not in excess of amounts that corporations, business trusts or other business are charged by unrelated banks on comparable loans for entities in which it is or thereby becomes a the same purpose, and, if a property is involved, in participant upon such terms and subject to such the locality of the property. No prepayment charge or conditions consistent with the AIMCO Operating Part- penalty will be required by the general partner on a nership Agreement and applicable law as the general loan to your partnership. To the extent the general partner, in its sole and absolute discretion, believes partner lends proceeds to your partnership, on an un- to be advisable. Except as expressly permitted by the secured basis, such amounts will bear interest at an AIMCO Operating Partnership Agreement, neither the amount not to exceed the lesser of the actual cost to general partner nor any of its affiliates may sell, the general partner or the most recent prime rate of transfer or convey any property to the AIMCO Operating interest charged by Bank of America, N.A., San Partnership, directly or indirectly, except pursuant to Francisco main office, in effect on the date such loan transactions that are determined by the general partner is first created. However, the general partner may not in good faith to be fair and reasonable. obtain any long-term financing from the general partner. The general partner may not cause your partnership to enter into any agreements with the general partner or its affiliates which are not subject to termination without penalty by either party upon not more than sixty days' written notice. Your partnership may not purchase or lease, directly or indirectly, any property from the general partner or its affiliates, from any investor program in which the general partner or any of their affiliates have an interest and may not sell or lease, directly or indirectly, any of its property to any of the above parties.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mort- Partnership has credit
S-60 1824 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP gages, security agreements, promissory notes, documents agreements that restrict, among other things, its related to mortgage-backed securities, and other ability to incur indebtedness. See "Risk documents as provided for in your partnership's Factors -- Risks of Significant Indebtedness" in the agreement of limited partnership. Your partnership may accompanying Prospectus. not incur any nonrecourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in
S-61 1825 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP any action, including a partnership derivative suit) or judgment or mistakes of fact or law of any act or to any of the limited partners for the doing of any act omission if the general partner acted in good faith. or the failure to do any act, the effect of which may The AIMCO Operating Partnership Agreement provides for cause or result in loss or damage to your partnership, indemnification of AIMCO, or any director or officer of if done in good faith to promote the best interests of AIMCO (in its capacity as the previous general partner your partnership. The general partner and its of the AIMCO Operating Partnership), the general affiliates or agents are entitled to indemnification by partner, any officer or director of general partner or your partnership from assets of your partnership, or as the AIMCO Operating Partnership and such other persons an expense of your partnership, but not from the as the general partner may designate from and against limited partners, against any liability or loss, as a all losses, claims, damages, liabilities, joint or result of any claim or legal proceeding (whether or not several, expenses (including legal fees), fines, the same proceeds to judgment or is settled or settlements and other amounts incurred in connection otherwise brought to a conclusion) relating to the with any actions relating to the operations of the performance or non-performance of any act concerning AIMCO Operating Partnership, as set forth in the AIMCO the activities of your partnership except in the case Operating Partnership Agreement. The Delaware Limited where the general partner or its affiliates or agents Partnership Act provides that subject to the standards are guilty of bad faith, negligence, misconduct or and restrictions, if any, set forth in its partnership reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding the foregoing, neither the Act of 1933. general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnifica- tion for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove or elect a has exclusive management power over the business and general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general owning a majority of the outstanding units. No limited partner may not be removed as general partner of the partner may substitute a transferee of his units in AIMCO Operating Partnership by the OP Unitholders with such limited partner's place without the consent of the or without cause. Under the AIMCO Operating Partnership general partner which may be withheld at the sole Agreement, the general partner may, in its sole discretion of the general partner. discretion, prevent a transferee of an 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 Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with federal holders of a majority of the outstanding Common OP and state securities laws and to cure any ambiguities. Units, excluding AIMCO and certain other limited Other amendments to your partner- exclusions
S-62 1826 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's agreement of limited partnership must be (a "Majority in Interest"). Amendments to the AIMCO approved by the limited partners owning more than 50% Operating Partnership Agreement may be proposed by the of the units. However, the limited partners may not general partner or by holders of a Majority in amend your partnership's agreement of limited Interest. Following such proposal, the general partner partnership (1) to extend your partnership term or (2) will submit any proposed amendment to the OP to alter the rights of the general partner to receive Unitholders. The general partner will seek the written compensation, return of invested capital, allocations, consent of the OP Unitholders on the proposed amend- and distributions, without the consent of the general ment or will call a meeting to vote thereon. See partner. Also, a unanimous vote of the limited partners "Description of OP Units -- Amendment of the AIMCO is required to amend the provision in your Operating Partnership Agreement" in the accompanying partnership's agreement of limited partnership dealing Prospectus. with substituted limited partners.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual fee equal to 9% of Distributed Cash From its services as general partner of the AIMCO Operating Operations received by the limited partners for its Partnership. However, the general partner is entitled services as general partner of your partnership and may to payments, allocations and distributions in its receive reimbursement for expenses incurred in such capacity as general partner of the AIMCO Operating capacity. Partnership. In addition, the AIMCO Operating Part- nership 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 California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such may not commingle
S-63 1827 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP funds of your partnership with any other person. terms as the general partner, in its sole and absolute Subject to its fiduciary duties, general partner and discretion, believes are advisable. The AIMCO Operating its affiliates may engage in whatever activities they Partnership Agreement expressly limits the liability of choose, whether the same are competitive with your the general partner by providing that the general partnership or otherwise, without having or incurring partner, and its officers and directors will not be any obligation to offer any interest in such activities liable or accountable in damages to the AIMCO Operating to your partnership or any party hereto. The Partnership, the limited partners or assignees for obligations of the parties are, therefore, limited errors in judgment or mistakes of fact or law or of any solely to those arising from the acquisition and act or omission if the general partner or such director holding of your partnership's properties. or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-64 1828 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner; and approve other Preferred OP Units are outstand- proceedings, an assignment for the matters as otherwise provided in ing, in addition to any other vote benefit of creditors and certain your partnership's agreement of or consent of partners required by transfers by the general partner of limited partnership. Unless prior law or by the AIMCO Operating its interest in the AIMCO Operating consent of the limited partners Partnership Agreement, the Partnership or the admission of a holding a majority of the units of affirmative vote or consent of successor general partner. your partnership is obtained, the holders of at least 50% of the general partner is prohibited from outstanding Preferred OP Units will Under the AIMCO Operating Partner- (1) selling substantially all of be necessary for effecting any ship Agreement, the general partner your partnership's assets in a amendment of any of the provisions has the power to effect the single sale or in multiple sales in of the Partnership Unit Desig- acquisition, sale, transfer, the same 12-month period, except in nation of the Preferred OP Units exchange or other disposition of the orderly liquidation and winding that materially and adversely any assets of the AIMCO Operating up of the business, (2) pledging affects the rights or preferences Partnership (including, but not the credit of your partnership in of the holders of the Preferred OP limited to, the exercise or grant any way except in the ordinary Units. The creation or issuance of of any conversion, option, course of business, (3) executing any class or series of partnership privilege or subscription right or or delivering any assignment for units, including, without any other right available in the benefit of the creditors of limitation, any partnership units connection with any assets at any your partnership, and (4) that may have rights senior or time held by the AIMCO Operating releasing, assigning or superior to the Preferred OP Units, Partnership) or the merger, transferring a partnership claim, shall not be deemed to materially consolidation, reorganization or security, commodity or any other adversely affect the rights or other combination of the AIMCO asset in your partnership without preferences of the holders of Operating Partnership with or into full and adequate consideration. Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. A general partner may cause the scribed voting rights, each dissolution of your partnership by Preferred OP Units shall have one The general partner may cause the retiring. Your partnership may be (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating continued by the remaining general Partnership by an "event of partner or, if none, the limited withdrawal," as defined in the partners may agree to continue your Delaware Limited Partnership Act partnership by electing a successor (including, without limitation, general partner upon the vote of bankruptcy), unless, within 90 days holders of more than 50% of the after the withdrawal, holders of a units within 60 days after the "majority in interest," as defined retirement of the general partner. in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operat-
S-65 1829 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ing 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made provided, however, that at any time portion as the general partner may quarterly during the fiscal year. and from time to time on or after in its sole and absolute discretion The distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior
S-66 1830 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may not sell, There is no public market for the There is no public market for the transfer, encumber or otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- dispose by operation of law or Preferred OP Units are not listed nership Agreement restricts the otherwise of the whole or any part on any securities exchange. The transferability of the OP Units. of his interest in your partnership Preferred OP Units are subject to Until the expiration of one year except by written instrument restrictions on transfer as set from the date on which an OP satisfactory in form to the general forth in the AIMCO Operating Unitholder acquired OP Units, partner, accompanied by the Partnership Agreement. subject to certain exceptions, such assurance of the genuineness and OP Unitholder may not transfer all effectiveness of each such Pursuant to the AIMCO Operating or any portion of its OP Units to signature and the obtaining of any Partnership Agreement, until the any transferee without the consent federal and/or state governmental expiration of one year from the of the general partner, which approval, if any, as may be date on which a holder of Preferred consent may be withheld in its sole reasonably required by the general OP Units acquired Preferred OP and absolute discretion. After the partner. A minimum of twenty units Units, subject to certain expiration of one year, such OP may be transferred, except for IRA exceptions, such holder of Unitholder has the right to or Keogh plans, and except for Preferred OP Units may not transfer transfer all or any portion of its transfers by gift or inheritance, all or any portion of its Pre- OP Units to any person, subject to intrafamily transfers, family ferred OP Units to any transferee the satisfaction of certain dissolutions and transfers to without the consent of the general conditions specified in the AIMCO affiliates. No assignment is valid partner, which consent may be Operating Partnership Agreement, or effective unless made in withheld in its sole and absolute including the general partner's compliance with the conditions discretion. After the expiration of right of first refusal. See contained herein. No partner may one year, such holders of Preferred "Description of OP Units -- make any assignment of all or any OP Units has the right to transfer Transfers and Withdrawals" in the part of his interest if said all or any portion of its Preferred accompanying Prospectus. transfer or assignment would, when OP Units to any person, subject to considered with all other transfers the satisfaction of certain After the first anniversary of made during the same applicable conditions specified in the AIMCO becoming a holder of Common OP 12-month period, cause a Operating Partnership Agreement, Units, an OP Unitholder has the termination of your partnership for including the general partner's right, subject to the terms and federal or any applicable state right of first refusal. conditions of the AIMCO Operating income tax purposes. Such Partnership Agreement, to require transferee may be substituted as a After a one-year holding period, a the AIMCO Operating Partnership to limited partner if, in addition to holder may redeem Preferred OP redeem all or a portion of the the above requirements: (1) the Units and receive in exchange Common OP Units held by such party assignor designates such intention therefor, at the AIMCO Operating in exchange for a cash amount based in the instrument of assignment, Partnership's option, (i) subject on the value of shares of Class A (2) the written consent of the gen- to the terms of any Senior Units, Common Stock. See "Description of eral partner is obtained, the cash in an amount equal to the OP Units -- Redemption Rights" in granting of which is in the general Liquidation Preference of the the accompanying Prospectus. Upon partner's sole discretion and in Preferred OP Units tendered for receipt of a notice of redemption, accordance with your part- redemption, (ii) a number of shares the AIMCO Operating Partnership nership's agreement of limited of Class I Cumulative Preferred may, in its sole and absolute partnership, (3) the assignment Stock of AIMCO that pay an discretion but subject to the instrument is in form and substance aggregate amount of dividends yield restrictions on the ownership of satisfactory to the general equivalent to the distributions on Class A Common Stock imposed under partner, (4) the assignor and the Preferred OP Units tendered for AIMCO's charter and the transfer assignee duly execute and acknowl- redemption and are part of a class restrictions and other limitations edge such other instrument or or series of preferred stock that thereof, elect to cause AIMCO to instruments as the general partner is then listed on the New York acquire some or all of the tendered may deem necessary or desirable and Stock Exchange or another national Common OP Units in exchange for (5) the assignee accepts, adopts securities exchange, or (iii) a Class A Common Stock, based on an and approves in writing all of the number of shares of Class A Common exchange ratio of one share of terms and provisions of your part- Stock of AIMCO that is equal in Class A Common Stock for each Com- nership's agreement of limited Value to the Liquidation Preference mon OP Unit, subject to adjustment partnership. of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1831 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1832 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1833 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1834 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1835 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1836 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1837 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1838 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1839 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee of up to 9% of Distributed Cash From Operations received by the limited partners for its services as general partner of your partnership and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $403,000 in 1996, $374,000 in 1997 and $187,000 for the first six months of 1998. The property manager received management fees of $658,000 in 1996, $737,000 in 1997 and $384,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 1840 YOUR PARTNERSHIP GENERAL Consolidated Capital Institutional Properties/3 was organized on May 23, 1984 under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of (a) 1,661 apartment units in 8 properties located in Washington, Florida, Michigan, Utah, North Carolina, and Colorado and (b) two commercial office buildings, with total square feet of 277,000, in Florida and California. One of the properties, City Heights Apartments, is under contract to be sold to an unaffiliated party in November 1998. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 91,557.20 units issued and outstanding, which were held of record by 15,364 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-K for the year ended December 31, 1997; - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated July 25, 1986, by which units in your partnership were originally offered, your partnership was formed for the purpose of making loans to affiliated entities. The general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner would sell or refinance their properties within a period less than twelve years of the offering. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 1841 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the duties of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Notwithstanding the foregoing, neither the general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership must at all times maintain public liability insurance in amounts determined by the general partner for the protection of your partnership and cash of its members. S-78 1842 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $250.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 9.42 January 1, 1996 - December 31, 1996......................... 18.98 January 1, 1997 - December 31, 1997......................... 36.13 January 1, 1998 - June 30, 1998............................. --
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 25.1% interest in your partnership, including 39,761.5 units held by us and the general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $282,000 1995........................................................ 429,000 1996........................................................ 403,000 1997........................................................ 374,000 1998 (through June 30)...................................... 187,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $260,000 1995........................................................ 572,000 1996........................................................ 658,000 1997........................................................ 737,000 1998 (through June 30)...................................... 384,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 1843 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 1844 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Consolidated Capital Institutional Properties/3 appearing in Consolidated Capital Institutional Properties/3 Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their Report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 1845 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-K filed with the Securities and Exchange Commission for the years ended December 31, 1995, 1996 and 1997, and quarterly report on Form 10-Q for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1846 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1847 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1848 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 1849
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 1850
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 1851
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 1852
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1853 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1854 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CONSOLIDATED CAPITAL PROPERTIES III IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $91.00 per unit and an affiliate estimated the net liquidation value of your units to be $90.81 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire securities, the nature of your investment will change from holding an interest in a few properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1855 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Consolidated Capital Properties III..................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 1856
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 [Fiduciary Responsibility of the General Partner of Your Partnership]............... S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1857 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Consolidated Capital Properties III. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1858 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1859 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $13.69 per unit for the year ended December 31, 1997 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in four properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1860 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $13.50 per unit to $94.91 per unit over the period from January 1, 1997 through September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $91.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $90.81 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1861 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 6 units (or 10 units if you reside in Missouri at the time you tender) (except for units held by IRAs and Keogh Plans). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1862 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1863 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1864 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $91.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $90.81 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $13.50 per unit to $94.91 per unit for the period from January 1, 1997 through September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 1865 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 1866 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 1867 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 1868 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 25.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 1869 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 1870 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 1871 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 1872 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 1873 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $13.50 to $94.91 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 1874 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to a maximum of 9% of an amount equal to actual distributions to limited partners of Distributed Cash From Operations for its services as general partner and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $72,000 for the first six months of 1998. The property manager received management fees of $95,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Consolidated Capital Properties III was organized on May 22, 1980, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed S-18 1875 for the purpose of making investments in various types of real properties which offer potential capital appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Ventura Landing Apartments, a 184-unit complex in Orlando, Florida; Village Green Apartments, a 164-unit complex in Altamonte Springs, Florida; and West Chase Apartments, a 120-unit complex in Lexington, Kentucky. Additionally, your partnership's investment portfolio contains Professional Plaza Office Building, a 79,000 square foot office building in Salt Lake City, Utah. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Financial Group, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 158,582 units of limited partnership interest issued and outstanding, which were held of record by 7,412 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1876 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1877
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1878 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1879
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1880 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1881 SUMMARY FINANCIAL INFORMATION OF CONSOLIDATED CAPITAL PROPERTIES III The summary financial information of Consolidated Capital Properties III for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Consolidated Capital Properties III for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CONSOLIDATED CAPITAL PROPERTIES III
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------- ------------------------ 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $1,937 $1,791 $3,740 $6,227 $4,683 Net Income(Loss)............................................ 386 255 491 1,693 (775) Net income (Loss) per limited partnership unit.............. 2.34 1.54 2.97 17.20 (5.39) Distributions per limited partnership unit.................. -- 6.96 13.69 2.30 18.58
JUNE 30, DECEMBER 31, --------------- ------------------------ 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $4,577 $4,565 $4,585 $4,620 $5,758 Total Assets................................................ 7,675 8,132 7,243 8,999 9,178 Notes Payable............................................... 4,200 4,200 4,200 4,200 6,718 Partners' Capital (Deficit)................................. 3,025 3,515 2,639 4,410 1,948
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CONSOLIDATED CAPITAL PARTNERSHIP PROPERTIES III ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $13.69
S-25 1882 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $13.50 per unit to $94.91 per unit over the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $91.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $90.81 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 1883 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 1884 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $13.69 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 1885 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Financial Group, Inc., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 25.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 1886 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In July 30, 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer to acquire 75,000 units (representing approximately 47% of the number outstanding) at a cash purchase price of $60 per unit. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $25.00 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your S-30 1887 partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the S-31 1888 opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1889 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1890 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 6 units (or 10 units if you reside in Missouri at the time you tender) (except for units held by IRAs and Keogh Plans). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1891 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1892 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1893 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1894 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1895 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1896 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1897 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1898 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 25,336 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 15.98% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1899 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1900 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1901 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1902 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1903 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1904 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Professional Plaza Office Building $ % $ Ventura Landing Apartments Village Green Apartments West Chase Apartments
- - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 1905 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 1906 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $13.69 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 1907 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 1908 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $13.50 to $94.91 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 29,157.5 units (representing less than 18.39% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CONSOLIDATED CAPITAL PROPERTIES III REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(A) -------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $13.50 $91.50 Second Quarter............................................ 17.67 61.49 First Quarter............................................. 17.67 83.33 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 24.00 38.04 Third Quarter............................................. 20.20 94.91 Second Quarter............................................ 19.16 55.29 First Quarter............................................. 25.00 87.05 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 15.05 52.00 Third Quarter............................................. 33.00 50.00 Second Quarter............................................ 25.00 57.00 First Quarter............................................. 24.75 62.43
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-52 1909 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Village Green Apartments and Ventura Landing Apartments were appraised in April 12, 1996, by an independent, third party appraiser, Joseph J. Blake & Associates (the "Appraiser"), in connection with a refinancing of each property. According to the appraisal reports, the scope of the appraisals included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the properties specified in those appraisal reports were $4,000,000 and $3,900,000, respectively. A copy of the summaries of the appraisals has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $91.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from S-53 1910 temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. S-54 1911 SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improve- S-55 1912 ments, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; S-56 1913 (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 1914 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash From Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2010. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' invested amended from time to time, or any successor to such capital by investing, either alone or in association statute) (the "Delaware Limited Partnership Act"), with others, in a diversified portfolio of provided that such business is to be conducted in a income-producing properties, (2) provide gains through manner that permits AIMCO to be qualified as a REIT, potential appreciation of the properties, and (3) build unless AIMCO ceases to qualify as a REIT. The AIMCO equity through reduction of mortgage loans. Subject to Operating Partnership is authorized to perform any and restrictions contained in your partnership's agreement all acts for the furtherance of the purposes and of limited partnership, your partnership may perform business of the AIMCO Operating Partnership, provided all acts necessary, advisable or convenient to the that the AIMCO Operating Partnership may not take, or business of your partnership including borrowing money refrain from taking, any action which, in the judgment and creating liens. 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.
S-58 1915 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 240,200 units for time to the limited partners and to other persons, and cash and notes to selected persons who fulfill the to admit such other persons as additional limited requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital of limited partnership. The capital contribution need contributions as may be established by the general not be equal for all limited partners and no action or partner in its sole discretion. The net capital consent is required in connection with the admission of contribution need not be equal for all OP Unitholders. any additional limited partners. The general partner No action or consent by the OP Unitholders is required may not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner and its affiliates may funds or other assets to its subsidiaries or other acquire units from time to time on their own behalf and persons in which it has an equity investment, and such for their own benefit, provided that such right does persons may borrow funds from the AIMCO Operating not create any preferences in rights or benefits in Partnership, on terms and conditions established in the favor of such persons or permit them to buy units other sole and absolute discretion of the general partner. To than at the same cash price and on the same terms as the extent consistent with the business purpose of the are available to other non-affiliated limited partners. AIMCO Operating Partnership and the permitted Your partnership may not make any loans to the general activities of the general partner, the AIMCO Operating partner but the general partner may lend money to your Partnership may transfer assets to joint ventures, partnership on terms, as to interest rates and other limited liability companies, partnerships, finance charges and fees, not in excess of amount that corporations, business trusts or other business are charged by unrelated banks on comparable loans for entities in which it is or thereby becomes a the same purpose, and, if a property is involved, in participant upon such terms and subject to such the locality of the property. No prepayment charge or conditions consistent with the AIMCO Operating Part- penalty will be required by the general partner on a nership Agreement and applicable law as the general loan to your partnership. To the extent the general partner, in its sole and absolute discretion, believes partner lends proceeds to your partnership, on an to be advisable. Except as expressly permitted by the unsecured basis, such amounts will bear interest at an AIMCO Operating Partnership Agreement, neither the amount not to exceed the lesser of the actual cost to general partner nor any of its affiliates may sell, the general partner or the most recent prime rate of transfer or convey any property to the AIMCO Operating interest charged by Bank of America, N.A., San Partnership, directly or indirectly, except pursuant to Francisco main office, in effect on the date such loan transactions that are determined by the general partner if first created. The general partner may not grant in good faith to be fair and reasonable. exclusive right to sell or exclusive employment to sell property for your partnership to itself. Your partnership may not obtain long-term financing from the general partner, except that it may issue an "all-inclusive" or "wraparound" note if certain conditions are satisfied. The general partner may not cause your partnership to enter into any agreements with the general partner or its affiliates which are not subject to termination without penalty by either party upon not more than sixty days' written notice. Your partnership may not purchase or lease property in which the general partner has an interest and may not acquire property from any party in whom the general partner has an interest. Notwithstanding the foregoing and according to the terms of your partnership's agreement of limited partnership, the general partner may purchase property in its own name and temporarily hold title thereto for the purpose of facilitating the acquisition of such property or the borrowing of money or obtaining of financing for your partnership, or the completion of construction of the property, or any other purpose related to the
S-59 1916 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP business of your partnership, provided that such property is purchased by your partnership for a price no greater than the cost of such property to the general partner and provided there is no difference in interest rates of the loans secured by the property at the time acquired by the general partner and at the time acquired by your partnership, nor any other benefit to the general partner arising out of such transaction apart from compensation otherwise permitted by your partnership's agreement of limited partnership. Your partnership may not sell or lease property to the general partner.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 80% of the purchase price of all properties on a combined basis. The general partner will use its best efforts to obtain level payment financing on the most favorable terms available to your partnership and will use its best efforts on any first mortgage financing incurred in connection with property purchases, where a provision for a balloon payment is provided, to additionally provide: (1) that such balloon payment will not be due and payable prior to fifteen years from the acquisition date of the property and (2) that such loan will have regular payments in an amount which would be sufficient to self-liquidate the loan over a 20- to 30-year period. Secondary financing, if any, will be fully amortizing or, if not fully amortizing, will not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less than 10% of the purchase price of a property. Your partnership may not incur any non-recourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited partner requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
S-60 1917 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to be partner, any officer or director of general partner or indemnified by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to conclusion) relating to with any actions relating to the operations of the the performance or non-performance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding the forgoing, neither the Act of 1933. general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection
S-61 1918 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP with (i) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (1) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporation regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove or elect a has exclusive management power over the business and general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general owning a majority of the outstanding units. No limited partner may not be removed as general partner of the partner may substitute a transferee of his units in AIMCO Operating Partnership by the OP Unitholders with such limited partner's place without the consent of the or without cause. Under the AIMCO Operating Partnership general partner which may be withheld at the sole Agreement, the general partner may, in its sole discretion of the general partner. discretion, prevent a transferee of an 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 Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with federal holders of a majority of the outstanding Common OP and state securities laws and to cure any ambiguities. Units, excluding AIMCO and certain other limited Other amendments to your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership must be approved by the limited the AIMCO Operating Partnership Agreement may be partners owning more than 50% of the units. However, proposed by the general partner or by holders of a the limited partners may not amend your partnership's Majority in Interest. Following such proposal, the agreement of limited partnership (1) to extend your general partner will submit any proposed amendment to partnership term or (2) to alter the rights of the the OP Unitholders. The general partner will seek the general partner to receive compensation, return of written consent of the OP Unitholders on the proposed invested capital, allocations, and distributions, amendment or will call a meeting to vote thereon. See without the consent of the general partner. Also, a "Description of OP Units -- Amendment of the AIMCO unanimous vote of the limited partners is required to Operating Partnership Agreement" in the accompanying amend the provision in your partnership's agreement of Prospectus. limited partnership dealing with substituted limited partners.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual management fee equal to a maximum of 9% of an its services as general partner of the AIMCO Operating amount equal to actual distributions to limited Partnership. However, the general partner is entitled partners of Distributed Cash From Operations for its to payments, allocations and distributions in its services as general partner and may receive capacity as general partner of the AIMCO Operating reimbursement for expenses incurred in such capacity. Partnership. In addition, the AIMCO Operating Part- The general partner received a total of $72,000 in nership is responsible for all expenses incurred partnership management fees and reimbursements for the relating to the AIMCO Operating Partnership's ownership first six months of 1998. 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.
S-62 1919 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, general Operating Partnership Agreement expressly limits the partner and its affiliates may engage in whatever liability of the general partner by providing that the activities they chose, whether the same are competitive general partner, and its officers and directors will with your partnership or otherwise, without having or not be liable or accountable in damages to the AIMCO incurring any obligation to offer any interest in such Operating Partnership, the limited partners or activities to your partnership or any party hereto. The assignees for errors in judgment or mistakes of fact or obligations of the parties are, therefore, limited law or of any act or omission if the general partner or solely to those arising from the acquisition and such director or officer acted in good faith. See holding of your partnership's properties. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 1920 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner; and approve other Preferred OP Units are outstand- proceedings, an assignment for the matters as otherwise provided in ing, in addition to any other vote benefit of creditors and certain your partnership's agreement of or consent of partners required by transfers by the general partner of limited partnership. Unless prior law or by the AIMCO Operating its interest in the AIMCO Operating consent Partnership Agree- Part-
S-64 1921 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS of the limited partners holding a ment, the affirmative vote or nership or the admission of a majority of the units of your consent of holders of at least 50% successor general partner. partnership is obtained, the of the outstanding Preferred OP general partner is prohibited from Units will be necessary for Under the AIMCO Operating Partner- (1) selling substantially all of effecting any amendment of any of ship Agreement, the general partner your partnership's assets in a the provisions of the Partnership has the power to effect the single sale or in multiple sales in Unit Designation of the Preferred acquisition, sale, transfer, the same 12-month period, except in OP Units that materially and exchange or other disposition of the orderly liquidation and winding adversely affects the rights or any assets of the AIMCO Operating up of the business, (2) pledging preferences of the holders of the Partnership (including, but not the credit of your partnership in Preferred OP Units. The creation or limited to, the exercise or grant any way except in the ordinary issuance of any class or series of of any conversion, option, course of business, (3) executing partnership units, including, privilege or subscription right or or delivering any assignment for without limitation, any partner- any other right available in the benefit of the creditors of ship units that may have rights connection with any assets at any your partnership, and (4) senior or superior to the Preferred time held by the AIMCO Operating releasing, assigning or OP Units, shall not be deemed to Partnership) or the merger, transferring a partnership claim, materially adversely affect the consolidation, reorganization or security, commodity or any other rights or preferences of the other combination of the AIMCO asset in your partnership without holders of Preferred OP Units. With Operating Partnership with or into full and adequate consideration. respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. A general partner may cause the Preferred OP Units shall have one dissolution of your partnership by (1) vote per Preferred OP Unit. The general partner may cause the retiring. Your partnership may be dissolution of the AIMCO Operating continued by the remaining general Partnership by an "event of partner or, if none, the limited withdrawal," as defined in the partners may agree to continue your Delaware Limited Partnership Act partnership by electing a successor (including, without limitation, general partner upon the vote of bankruptcy), unless, within 90 days holders of more than 50% of the after the withdrawal, holders of a units within 60 days after the "majority in interest," as defined retirement of the general partner. in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made provided, however, that at any time portion as the general partner may quarterly during the fiscal year and from time to time on or after in its sole and absolute discretion after the minimum units are sold. the fifth anniversary of the issue determine, of Available Cash (as The distributions payable to the date of the Preferred OP Units, the defined in the AIMCO Operating partners are not fixed in amount AIMCO Operating Partnership may Partnership Agreement) generated by and depend upon the operating adjust the annual distribution rate the AIMCO Operating Partnership results and net sales or refi- on the Preferred OP Units to the during such quarter to the general nancing proceeds available from the lower of (i) % plus the annual partner, the special limited disposition of your partnership's interest rate then applicable to partner and the holders of Common assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-65 1922 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may not sell, There is no public market for the There is no public market for the transfer, encumber or otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- dispose by operation of law or Preferred OP Units are not listed nership Agreement restricts the otherwise of the whole or any part on any securities exchange. The transferability of the OP Units. of his interest in your partnership Preferred OP Units are subject to Until the expiration of one year except by written instrument restrictions on transfer as set from the date on which an OP satisfactory in form to the general forth in the AIMCO Operating Unitholder acquired OP Units, partner, accompanied by the Partnership Agreement. subject to certain exceptions, such assurance of the genuineness and OP Unitholder may not transfer all effectiveness of each such Pursuant to the AIMCO Operating or any portion of its OP Units to signature and the obtaining of any Partnership Agreement, until the any transferee without the consent federal and/or state governmental expiration of one year from the of the general partner, which approval, if any, as may be date on which a holder of Preferred consent may be withheld in its sole reasonably required by the general OP Units acquired Preferred OP and absolute discretion. After the partner. A minimum of six units may Units, subject to certain expiration of one year, such OP be transferred, other than for exceptions, such holder of Unitholder has the right to transferors who reside in Missouri Preferred OP Units may not transfer transfer all or any portion of its at the time of transfer who will be all or any portion of its Pre- OP Units to any person, subject to required to transfer a minimum of ferred OP Units to any transferee the satisfaction of certain ten units, except for transfers by without the consent of the general conditions specified in the AIMCO gift or inheritance, intrafamily partner, which consent may be Operating Partnership Agreement, transfers, family dissolutions and withheld in its sole and absolute including the general partner's transfers to affiliates. No discretion. After the expiration of right of first refusal. See assignment is valid or effective one year, such holders of Preferred "Description of OP Units -- unless in compliance with the OP Units has the right to transfer Transfers and Withdrawals" in the conditions contained herein. No all or any portion of its Preferred accompanying Prospectus. partner may make any assignment of OP Units to any person, subject to all or any part of his the satisfaction of
S-66 1923 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest if said transfer of certain conditions specified in the After the first anniversary of assignment would, when considered AIMCO Operating Partnership Agree- becoming a holder of Common OP with all other transfers made ment, including the general Units, an OP Unitholder has the during the same applicable 12-month partner's right of first refusal. right, subject to the terms and period, cause a termination of your conditions of the AIMCO Operating partnership for federal or any After a one-year holding period, a Partnership Agreement, to require applicable state income tax holder may redeem Preferred OP the AIMCO Operating Partnership to purposes. Such transferee may be Units and receive in exchange redeem all or a portion of the substituted as a limited partner therefor, at the AIMCO Operating Common OP Units held by such party if, in addition to the above re- Partnership's option, (i) subject in exchange for a cash amount based quirements: (1) the assignor to the terms of any Senior Units, on the value of shares of Class A designates such intention in the cash in an amount equal to the Common Stock. See "Description of instrument of assignment, (2) the Liquidation Preference of the OP Units -- Redemption Rights" in written consent of the general Preferred OP Units tendered for the accompanying Prospectus. Upon partner is obtained, the granting redemption, (ii) a number of shares receipt of a notice of redemption, of which is in the general of Class I Cumulative Preferred the AIMCO Operating Partnership partner's sole discretion, (3) the Stock of AIMCO that pay an may, in its sole and absolute assignment instrument is in form aggregate amount of dividends yield discretion but subject to the and substance satisfactory to the equivalent to the distributions on restrictions on the ownership of general partner, (4) the assignor the Preferred OP Units tendered for Class A Common Stock imposed under and assignee duly execute and redemption and are part of a class AIMCO's charter and the transfer acknowledge such other instrument or series of preferred stock that restrictions and other limitations or instruments as the general is then listed on the New York thereof, elect to cause AIMCO to partner may deem necessary or Stock Exchange or another national acquire some or all of the tendered desirable and (5) the assignee securities exchange, or (iii) a Common OP Units in exchange for accepts, adopts and approves in number of shares of Class A Common Class A Common Stock, based on an writing all of the terms and Stock of AIMCO that is equal in exchange ratio of one share of provisions of your partnership's Value to the Liquidation Preference Class A Common Stock for each Com- agreement of limited partnership. of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 1924 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 1925 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 1926 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 1927 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 1928 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 1929 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 1930 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 1931 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 1932 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to a maximum of 9% of an amount equal to actual distributions to limited partners of Distributed Cash From Operations (as defined in your partnership's agreement of limited partnership) for its services as general partner and may receive reimbursement for expenses incurred in such capacity. The general partner received fees and reimbursements totaling $237,000 in 1996, $191,000 in 1997 and $72,000 for the first six months of 1998. The property manager received management fees of $207,000 in 1996, $181,000 in 1997 and $95,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 1933 YOUR PARTNERSHIP GENERAL Consolidated Capital Properties III was organized on May 22, 1980, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Ventura Landing Apartments, a 184-unit complex in Orlando, Florida; Village Green Apartments, a 164-unit complex in Altamonte Springs, Florida; and West Chase Apartments, a 120-unit complex in Lexington, Kentucky. Additionally, your partnership's investment portfolio contains Professional Plaza Office Building, a 79,000 square foot office building in Salt Lake City, Utah. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Financial Group, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 158,582 units of limited partnership interest issued and outstanding, which were held of record by 7,412 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated December 15, 1983, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner would, on average, begin selling their properties during the third year after the investments were made and sell all of their properties after seven years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2010, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 1934 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Notwithstanding the foregoing, neither the general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership must at all times maintain public liability insurance in amounts determined by the general partner for the protection of your partnership and cash of its members. S-78 1935 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 of Distributable Cash From Operations are to be made quarterly during the fiscal year after the minimum units are sold. 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 distributions in the past and is projected to make distributions in 1998. The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $500.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $18.58 January 1, 1996 - December 31, 1996......................... 2.30 January 1, 1997 - December 31, 1997......................... 13.69 January 1, 1998 - June 30, 1998............................. 0.00
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 25.2% interest in your partnership, including 39,761.5 units held by us and the interest of Concap Equities, Inc., as a general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $232,000 1995........................................................ 279,000 1996........................................................ 237,000 1997........................................................ 191,000 1998 (through June 30)...................................... 72,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $220,000 1995........................................................ 172,000 1996........................................................ 207,000 1997........................................................ 181,000 1998 (through June 30)...................................... 95,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 1936 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 1937 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Consolidated Capital Properties III appearing in Consolidated Capital Properties III Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 1938 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 1939 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 1940 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 1941 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1946 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 1947 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CONSOLIDATED CAPITAL PROPERTIES IV IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a small number of properties apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 1948 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Consolidated Capital Properties IV...................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-53 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-54 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 1949
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Term of the Partnership...................... S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1950 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Consolidated Capital Properties IV. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 1951 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 1952 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $6.41 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 1953 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $10.00 per unit to $152.60 per unit from January 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 1954 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of six units, other than for transferors who reside in Missouri at the time of transfer who are required to transfer a minimum of ten units (except for transfers by gift or inheritance, intrafamily transfers, family dissolutions and transfers to affiliates). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 1955 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 1956 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 1957 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $10.00 per unit to $152.62 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 1958 and manages a small number of properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 1959 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 1960 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 1961 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 28.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 1962 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 1963 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 1964 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 1965 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 1966 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $10.00 to $152.60 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 1967 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to up to 9% of an amount equal to actual distributions to limited partners of distributed cash from operations for its services as general partner and may receive reimbursement for expenses incurred in such capacity. Your general partner was paid $289,000 for fees and reimbursements for the first six months of 1998. The property manager received management fees of $732,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Consolidated Capital Properties IV was organized on September 22, 1981, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of 18 residential apartment complexes located in Nebraska, Tennessee, Florida, Georgia, Texas, Colorado, Utah, South Carolina, Washington, and Oklahoma. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Financial Group, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 342,773 units of limited partnership interest issued and outstanding, which were held of record by 12,105 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone S-18 1968 number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 1969 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 1970
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 1971 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 1972
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 1973 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 1974 SUMMARY FINANCIAL INFORMATION OF CONSOLIDATED CAPITAL PROPERTIES IV The summary financial information of Consolidated Capital Properties IV for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Consolidated Capital Properties IV for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CONSOLIDATED CAPITAL PROPERTIES IV
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS) OPERATING DATA: Total Revenues.............................................. $ 15,025 $ 14,114 $ 29,084 $ 28,137 $ 27,282 Net Income (Loss)........................................... 1,922 608 367 2,036 (1,197) Net Income (Loss) per limited partnership unit.............. 5.38 1.70 1.03 5.70 (3.35) Distributions per limited partnership unit.................. 6.41 4.07 7.01 12.91 2.58
JUNE 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $ 31,629 $ 34,006 $ 32,163 $ 36,194 $ 38,924 Total Assets................................................ 51,791 52,316 52,381 53,844 61,146 Notes Payable............................................... 72,225 71,561 72,439 71,763 76,336 Partners' Capital (Deficit)................................. (23,660) (22,087) (23,378) (21,242) (18,633)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CONSOLIDATED CAPITAL PARTNERSHIP PROPERTIES IV ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $6.41 $7.01
S-25 1975 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $10.00 per unit to $152.60 per unit from January 1, 1997 to September 30, 1998. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the S-26 1976 property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a small number of properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. S-27 1977 UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $6.41 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 1978 RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Financial Group, Inc., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 28.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 1979 Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. On August 28, 1997, an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 29,618 units (representing approximately 8.64% of the number outstanding) at a cash purchase price of $140.00 per unit on October 16, 1997. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to S-30 1980 continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-31 1981 The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 1982 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 1983 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of six units, other than for transferors who reside in Missouri at the time of transfer who are required to transfer a minimum of ten units (except for transfers by gift or inheritance, intrafamily dissolutions and transfers to affiliates). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 1984 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 1985 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 1986 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 1987 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 1988 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 1989 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 1990 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 1991 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 44,042.50 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 12.85% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 1992 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 1993 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 1994 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 1995 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 1996 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 1997 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION CAPITAL PROPERTY OPERATING INCOME RATE EXPENDITURES - -------- ---------------- -------------- -------------- The Apartments............................. $ % $ Arbours of Hermitage Apartments............ Briar Bay Racquet Club Apartments.......... Chimney Hill Apartments.................... Citadel Apartments......................... Citadel Village Apartments................. Denbigh Woods Apartments................... Foothill Place Apartments.................. Knollwood Apartments....................... Lake Forest Apartments..................... Nob Hill Villa Apartments.................. Overlook Apartments........................
S-48 1998
1997 NET CAPITALIZATION CAPITAL PROPERTY OPERATING INCOME RATE EXPENDITURES - -------- ---------------- -------------- -------------- Point West Apartments...................... $ % $ Post Ridge Apartments...................... Rivers Edge Apartments..................... South Port Apartments...................... Stratford Place Apartments................. Village East Apartments....................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. S-49 1999 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would S-50 2000 receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $6.41 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions S-51 2001 analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $10.00 to $152.60 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 63,916.5 units (representing less than 18.65% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CONSOLIDATED CAPITAL PROPERTIES IV REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 71.00 $ 152.60 Second Quarter............................................ (10.00) (147.76) First Quarter............................................. 30.00 151.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 55.00 142.00 Third Quarter............................................. 55.00 132.15 Second Quarter............................................ 35.00 132.00 First Quarter............................................. 55.00 125.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 54.00 115.00 Third Quarter............................................. 15.00 93.95 Second Quarter............................................ 21.00 95.00 First Quarter............................................. 25.10 78.00
S-52 2002 - --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-53 2003 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-54 2004 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-55 2005 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-56 2006 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 2007 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California laws. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash From Operation (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2011. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' invested amended from time to time, or any successor to such capital by investing, either alone or in association statute) (the "Delaware Limited Partnership Act"), with others, in a diversified portfolio of provided that such business is to be conducted in a income-producing properties, (2) provide gains through manner that permits AIMCO to be qualified as a REIT, potential appreciation of the properties, and (3) build unless AIMCO ceases to qualify as a REIT. The AIMCO equity through reduction of mortgage loans. Subject to Operating Partnership is authorized to perform any and restrictions contained in your partnership's agreement all acts for the furtherance of the purposes and of limited partnership, your partnership may perform business of the AIMCO Operating Partnership, provided all acts necessary, advisable or convenient to the that the AIMCO Operating Partnership may not take, or business of your partnership including borrowing money refrain from taking, any action which, in the judgment and creating liens. 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.
S-58 2008 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 400,200 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner and its affiliates may funds or other assets to its subsidiaries or other acquire units from time to time on their own behalf and persons in which it has an equity investment, and such for their own benefit, provided that such right does persons may borrow funds from the AIMCO Operating not create any preferences in rights or benefits in Partnership, on terms and conditions established in the favor of such persons or permit them to buy units other sole and absolute discretion of the general partner. To than at the same cash price and on the same terms as the extent consistent with the business purpose of the are available to other non-affiliated limited partners. AIMCO Operating Partnership and the permitted Your partnership may not make any loans to the general activities of the general partner, the AIMCO Operating partner but the general partner may lend money to your Partnership may transfer assets to joint ventures, partnership on terms, as to interest rates and other limited liability companies, partnerships, finance charges and fees, not in excess of amount that corporations, business trusts or other business are charged by unrelated banks on comparable loans for entities in which it is or thereby becomes a the same purpose, and, if a property is involved, in participant upon such terms and subject to such the locality of the property. No prepayment charge or conditions consistent with the AIMCO Operating Part- penalty will be required by the general partner on a nership Agreement and applicable law as the general loan to your partnership. To the extent the general partner, in its sole and absolute discretion, believes partner lends proceeds to your partnership, on an to be advisable. Except as expressly permitted by the unsecured basis, such amounts will bear interest at an AIMCO Operating Partnership Agreement, neither the amount not to exceed the lesser of the actual cost to general partner nor any of its affiliates may sell, the general partner or the most recent prime rate of transfer or convey any property to the AIMCO Operating interest charged by Bank of America, N.A., San Partnership, directly or indirectly, except pursuant to Francisco main office, in effect on the date such loan transactions that are determined by the general partner if first created. Your partnership may not obtain in good faith to be fair and reasonable. long-term financing from the general partner, except that in may issue an "all-inclusive" or "wraparound" note if certain conditions are satisfied. Your partnership may not grant exclusive right to sell or exclusive employment to sell property for your partnership to the general partner. The general partner may not cause your partnership to enter into any agreements with the general partner or its affiliates which are not subject to termination without penalty by either party upon not more than sixty days' written notice. Your partnership may not purchase or lease property in which the general partner has an interest and may not acquire property from any person in whom the general partner has an interest. Notwithstanding the foregoing and according to the terms of your partnership's agreement of limited partnership, the general partner may purchase property in its own name and temporarily hold title thereto for the purpose of facilitating the acquisition of such property or the borrowing of money or obtaining of financing for your partnership, or the completion of construction of the prop-
S-59 2009 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP erty, or any other purpose related to the business of your partnership, provided that such property is purchased by your partnership for a price no greater than the cost of such property to the general partner and provided there is no difference in interest rates of the loans secured by the property at the time acquired by the general partner and at the time acquired by your partnership, nor any other benefit to the general partner arising out of such transaction apart from compensation otherwise permitted by your partnership's agreement of limited partnership. Your partnership may not sell or lease property to the general partner.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 80% of the purchase price of all properties on a combined basis. The general partner will use its best efforts to obtain level payment financing on the most favorable terms available to your partnership and will not obtain first mortgage financing incurred in connection with property purchases, where a provision for a balloon payment is provided, which does not contain the following provisions, unless it obtains prior approval from the California Department of Corporations: (1) that such balloon payment will not be due and payable prior the greater of ten years or three years after the expected holding period from the later of the inception date of the loan or the acquisition date of the property and (2) that such loan will have regular payments in an amount which would be sufficient to self-liquidate the loan over a 20- to 30-year period. Secondary financing, if any, must be fully amortizing or, if not fully amortizing, must not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less that 10% of the purchase price of a property. Your partnership may not incur any non-recourse indebtedness wherein the holder will have or acquire, at any time as a result of making the loan any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
S-60 2010 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to be partner, any officer or director of general partner or indemnified by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or non-performance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding the foregoing, neither the Act of 1933. general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection
S-61 2011 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporation regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove the has exclusive management power over the business and general partner upon a vote of the holders of the affairs of the AIMCO Operating Partnership. The general majority of the outstanding units and the prior written partner may not be removed as general partner of the consent of the general partner. The limited partners AIMCO Operating Partnership by the OP Unitholders with may elect a general partner upon a vote of the limited or without cause. Under the AIMCO Operating Partnership partners owning a majority of the outstanding units. No Agreement, the general partner may, in its sole limited partner may substitute a transferee of his discretion, prevent a transferee of an OP Unit from units in such limited partner's place without the becoming a substituted limited partner pursuant to the consent of the general partner which may be withheld at AIMCO Operating Partnership Agreement. The general the sole discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with federal holders of a majority of the outstanding Common OP and state securities laws and to cure any ambiguities. Units, excluding AIMCO and certain other limited Other amendments to your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership must be approved by the limited the AIMCO Operating Partnership Agreement may be partners owning more than 50% of the units. However, proposed by the general partner or by holders of a the limited partners may not amend your partnership's Majority in Interest. Following such proposal, the agreement of limited partnership (1) to extend your general partner will submit any proposed amendment to partnership term or (2) to alter the rights of the the OP Unitholders. The general partner will seek the general partner to receive compensation, return of written consent of the OP Unitholders on the proposed invested capital, allocations, and distributions, amendment or will call a meeting to vote thereon. See without the consent of the general partner. Also, a "Description of OP Units -- Amendment of the AIMCO unanimous vote of the limited partners is required to Operating Partnership Agreement" in the accompanying amend the provision in your partnership's agreement of Prospectus. limited partnership dealing with substituted limited partners.
Compensation and Fees Your general partner will receive an annual management The general partner does not receive compensation for fee equal to up to 9% of an amount equal to actual its services as general partner of the AIMCO Operating distributions to limited partners of Distributed Cash Partnership. However, the general partner is entitled From Operations for its services as general partner and to payments, allocations and distributions in its may receive reimbursement for expenses incurred in such capacity as general partner of the AIMCO Operating capacity. Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 2012 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, general Operating Partnership Agreement expressly limits the partner and its affiliates may engage in whatever liability of the general partner by providing that the activities they chose, whether the same are competitive general partner, and its officers and directors will with your partnership or otherwise, without having or not be liable or accountable in damages to the AIMCO incurring any obligation to offer any interest in such Operating Partnership, the limited partners or activities to your partnership or any party hereto. The assignees for errors in judgment or mistakes of fact or obligations of the parties are, therefore, limited law or of any act or omission if the general partner or solely to those arising from the acquisition and such director or officer acted in good faith. See holding of your partnership's properties. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 consid-
S-63 2013 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ered a "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner; and approve other Preferred OP Units are outstand- proceedings, an assignment for the matters as otherwise provided in ing, in addition to any other vote benefit of creditors and certain your partnership's agreement of or consent of partners required by transfers by the general partner of law or by the its
S-64 2014 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS limited partnership. Unless prior AIMCO Operating Partnership Agree- interest in the AIMCO Operating consent of the limited partners ment, the affirmative vote or Partnership or the admission of a holding a majority of the units of consent of holders of at least 50% successor general partner. your partnership is obtained, the of the outstanding Preferred OP general partner is prohibited from Units will be necessary for Under the AIMCO Operating Partner- (1) selling substantially all of effecting any amendment of any of ship Agreement, the general partner your partnership's assets in a the provisions of the Partnership has the power to effect the single sale or in multiple sales in Unit Designation of the Preferred acquisition, sale, transfer, the same 12-month period, except in OP Units that materially and exchange or other disposition of the orderly liquidation and winding adversely affects the rights or any assets of the AIMCO Operating up of the business, (2) pledging preferences of the holders of the Partnership (including, but not the credit of your partnership in Preferred OP Units. The creation or limited to, the exercise or grant any way except in the ordinary issuance of any class or series of of any conversion, option, course of business, (3) executing partnership units, including, privilege or subscription right or or delivering any assignment for without limitation, any partner- any other right available in the benefit of the creditors of ship units that may have rights connection with any assets at any your partnership, and (4) senior or superior to the Preferred time held by the AIMCO Operating releasing, assigning or OP Units, shall not be deemed to Partnership) or the merger, transferring a partnership claim, materially adversely affect the consolidation, reorganization or security, commodity or any other rights or preferences of the other combination of the AIMCO asset in your partnership without holders of Preferred OP Units. With Operating Partnership with or into full and adequate consideration. respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. A general partner may cause the Preferred OP Units shall have one dissolution of your partnership by (1) vote per Preferred OP Unit. The general partner may cause the retiring. Your partnership may be dissolution of the AIMCO Operating continued by the remaining general Partnership by an "event of partner or, if none, the limited withdrawal," as defined in the partners may agree to continue your Delaware Limited Partnership Act partnership by electing a successor (including, without limitation, general partner upon the vote of bankruptcy), unless, within 90 days holders of more than 50% of the after the withdrawal, holders of a units within 60 days after the "majority in interest," as defined retirement of the general partner. in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made provided, however, that at any time portion as the general partner may quarterly during the fiscal year and from time to time on or after in its sole and absolute discretion after the minimum units are sold. the fifth anniversary of the issue determine, of Available Cash (as The distributions payable to the date of the Preferred OP Units, the defined in the AIMCO Operating partners are not fixed in amount AIMCO Operating Partnership may Partnership Agreement) generated by and depend upon the operating adjust the annual distribution rate the AIMCO Operating Partnership results and net sales or refi- on the Preferred OP Units to the during such quarter to the general nancing proceeds available from the lower of (i) % plus the annual partner, the special limited disposition of your partnership's interest rate then applicable to partner and the holders of Common assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO accordance with their respective interests in the
S-65 2015 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS non-convertible preferred stock AIMCO Operating Partnership on such which ranks on a parity with its record date. Holders of any other Class H Cumulative Preferred Stock. Preferred OP Units issued in the Such distributions will be future may have priority over the cumulative from the date of origi- general partner, the special nal issue. Holders of Preferred OP limited partner and holders of Units will not be entitled to Common OP Units with respect to receive any distributions in excess distributions of Available Cash, of cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may not sell, There is no public market for the There is no public market for the transfer, encumber or otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- dispose by operation of law or Preferred OP Units are not listed nership Agreement restricts the otherwise of the whole or any part on any securities exchange. The transferability of the OP Units. of his interest in your partnership Preferred OP Units are subject to Until the expiration of one year except by written instrument restrictions on transfer as set from the date on which an OP satisfactory in form to the general forth in the AIMCO Operating Unitholder acquired OP Units, partner, accompanied by the Partnership Agreement. subject to certain exceptions, such assurance of the genuineness and OP Unitholder may not transfer all effectiveness of each such Pursuant to the AIMCO Operating or any portion of its OP Units to signature and the obtaining of any Partnership Agreement, until the any transferee without the consent federal and/or state governmental expiration of one year from the of the general partner, which approval, if any, as may be date on which a holder of Preferred consent may be withheld in its sole reasonably required by the general OP Units acquired Preferred OP and absolute discretion. After the partner. A minimum of six units may Units, subject to certain expiration of one year, such OP be transferred, other than for exceptions, such holder of Unitholder has the right to transferors who reside in Missouri Preferred OP Units may not transfer transfer all or any portion of its at the time of transfer who are all or any portion of its Pre- OP Units to any person, subject to required to transfer a minimum of ferred OP Units to any transferee the satisfaction of certain ten units, except for transfers by without the consent of the general conditions specified in the AIMCO gift or inheritance, intrafamily partner, which consent may be Operating Partnership Agreement, transfers, family dissolutions and withheld in its sole and absolute including the general partner's transfers to affiliates. No discretion. After the expiration of right of first assignment is valid or effective unless in
S-66 2016 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS compliance with the conditions one year, such holders of Preferred refusal. See "Description of OP contained herein. No partner may OP Units has the right to transfer Units -- Transfers and Withdrawals" make any assignment of all or any all or any portion of its Preferred in the accompanying Prospectus. part of his interest if said OP Units to any person, subject to transfer or assignment would, when the satisfaction of certain After the first anniversary of considered with all other transfers conditions specified in the AIMCO becoming a holder of Common OP made during the same applicable Operating Partnership Agreement, Units, an OP Unitholder has the 12-month period, cause a including the general partner's right, subject to the terms and termination of your partnership for right of first refusal. conditions of the AIMCO Operating federal or any applicable state Partnership Agreement, to require income tax purposes. Such After a one-year holding period, a the AIMCO Operating Partnership to transferee may be substituted as a holder may redeem Preferred OP redeem all or a portion of the limited partner if, in addition to Units and receive in exchange Common OP Units held by such party the above requirements: (1) the therefor, at the AIMCO Operating in exchange for a cash amount based assignor designates such intention Partnership's option, (i) subject on the value of shares of Class A in the instrument of assignment, to the terms of any Senior Units, Common Stock. See "Description of (2) the written consent of the cash in an amount equal to the OP Units -- Redemption Rights" in general partner is obtained, the Liquidation Preference of the the accompanying Prospectus. Upon granting of which is the general Preferred OP Units tendered for receipt of a notice of redemption, partner's sole discretion, (3) the redemption, (ii) a number of shares the AIMCO Operating Partnership assignment instrument is in form of Class I Cumulative Preferred may, in its sole and absolute and substance satisfactory to the Stock of AIMCO that pay an discretion but subject to the general partner, (4) the assignor aggregate amount of dividends yield restrictions on the ownership of and assignee duly execute and equivalent to the distributions on Class A Common Stock imposed under acknowledge such other instrument the Preferred OP Units tendered for AIMCO's charter and the transfer or instruments as the general redemption and are part of a class restrictions and other limitations partner may deem necessary or or series of preferred stock that thereof, elect to cause AIMCO to desirable and (5) the assignee is then listed on the New York acquire some or all of the tendered accepts, adopts and approves in Stock Exchange or another national Common OP Units in exchange for writing all of the terms and securities exchange, or (iii) a Class A Common Stock, based on an provisions of your partnership's number of shares of Class A Common exchange ratio of one share of agreement of limited partnership. Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 2017 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 2018 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 2019 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 2020 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 2021 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 2022 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK Nature of Investment
PREFERRED OP UNITS CLASS I PREFERRED STOCK The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 2023 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 2024 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 2025 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP Conflicts of Interest that Currently Exist for Your Partnership. We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to up to 9% of an amount equal to actual distributions to limited partners of distributed cash from operations for its services as general partner and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and disbursements totaling $605,000 in 1996, $608,000 in 1997 and $289,000 for the first six months of 1998. The property manager received management fees of $1,316,000 in 1996, $1,413,000 in 1997 and $732,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 2026 YOUR PARTNERSHIP GENERAL Consolidated Capital Properties IV was organized on September 22, 1981, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of 18 residential apartment complexes located in Nebraska, Tennessee, Florida, Georgia, Texas, Colorado, Utah, South Carolina, Washington, and Oklahoma. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Financial Group, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 342,773 units of limited partnership interest issued and outstanding, which were held of record by 12,105 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-K for the year ended December 31, 1997; - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2011, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. S-77 2027 Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Notwithstanding the foregoing, neither the general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporation regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership must at all times maintain public liability insurance in amounts determined by the general partner for the protection of your partnership and cash of its members. S-78 2028 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $500.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 2.58 January 1, 1996 - December 31, 1996......................... 12.91 January 1, 1997 - December 31, 1997......................... 7.01 January 1, 1998 - June 30, 1998............................. 6.41
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 28.2% interest in your partnership, including 96,098 units held by us and the interest held by ConCap Equities, Inc., as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $505,000 1995........................................................ 645,000 1996........................................................ 605,000 1997........................................................ 608,000 1998 (through June 30)...................................... 289,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---------- 1994........................................................ $ 570,000 1995........................................................ 1,223,000 1996........................................................ 1,316,000 1997........................................................ 1,413,000 1998 (through June 30)...................................... 732,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 2029 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 2030 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Consolidated Capital Properties IV appearing in Consolidated Capital Properties IV Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 2031 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-K filed with the Securities and Exchange Commission for the years ended December 31, 1995, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2032 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2033 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2034 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2035
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2036
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2037
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2038
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2039 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2040 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CONSOLIDATED CAPITAL PROPERTIES V IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $49.00 per unit and an affiliate estimated the net liquidation value of your units to be $48.77 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in three properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2041 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Consolidated Capital Properties V....................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77
i 2042
PAGE ---- YOUR PARTNERSHIP............................... S-78 General...................................... S-78 Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2043 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Consolidated Capital Properties V. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2044 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2045 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid distributions since 1990. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in three properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2046 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $3.42 per unit to $55.00 per unit for the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $49.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $48.77 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2047 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 12 units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2048 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2049 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2050 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $49.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $48.77 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $3.42 per unit to $55.00 per unit for the period from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 2051 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages three properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 2052 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 2053 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 2054 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 26.18% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 2055 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2056 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 2057 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2058 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2059 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $3.42 to $55.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2060 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partnership units it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee up to 9% of Distributed Cash From Operations (as defined in your partnership's agreement of limited partnership) for its services as general partner of your partnership and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursement of $59,000 for the first six months of 1998. The property manager received management fees of $116,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Consolidated Capital Properties V was organized on June 30, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed S-18 2061 for the purpose of making investments in various types of real properties which offer potential capital appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following three properties: Aspen Ridge Apartments, a 253-unit complex in West Chicago, Illinois; Sutton Place Apartments, a 201-unit complex in Corpus Christi, Texas; and 51 North High Building, a 86,000 square-foot office building in Columbus, Ohio. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 179,537.20 units of limited partnership interest issued and outstanding, which were held of record by 3,897 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2062 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2063
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2064 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2065
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2066 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2067 SUMMARY FINANCIAL INFORMATION OF CONSOLIDATED CAPITAL PROPERTIES V The summary financial information of Consolidated Capital Properties V for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Consolidated Capital Properties V for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CONSOLIDATED CAPITAL PROPERTIES V
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- In thousands, except unit data OPERATING DATA: Total Revenues....................................... $ 2,227 $ 2,214 $ 4,424 $ 4,152 $ 5,008 Net Income (Loss).................................... (100) (100) (411) (877) (2,067) Net Income (Loss) per limited partnership unit....... (0.56) (0.56) (2.28) (6.40) (11.49) Distributions per limited partnership unit........... -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation......... $ 6,665 $ 7,004 $ 6,936 $ 7,291 $ 8,140 Total Assets......................................... 8,513 9,093 8,816 9,260 10,135 Notes Payable........................................ 11,078 11,210 11,145 11,294 10,925 Partners' Capital (Deficit).......................... (3,274) (2,863) (3,174) (2,763) (1,611)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CONSOLIDATED CAPITAL PARTNERSHIP PROPERTIES V ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding........... $1.125 $1.85 $0.00 $0.00
S-25 2068 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $3.42 per unit to $55.00 per unit for the period from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $49.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $48.77 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 2069 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 2070 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages three properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid distributions since 1990. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a S-28 2071 deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in an entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 26.18% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its S-29 2072 ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers On July 30, 1998, Cooper River Properties, L.L.C., which is an affiliate of Insignia and now our affiliate, commenced a tender offer for $33 per unit and purchased shares on , 1998. Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. On August 28, 1997, an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 29,618 units (representing approximately 8.64% of the number outstanding) at a cash purchase price of $140 per unit on October 16, 1997. In December 1997, Madison River Properties, L.L.C., which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $30 per unit and purchased 43,769 units in February 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 2073 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 2074 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2075 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2076 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 12 units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 2077 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2078 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2079 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2080 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2081 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2082 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2083 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2084 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 3,060.8 units in your partnership have been transferred during the twelve months ending December 31, 1997 (representing approximately 1.70% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2085 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2086 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by of the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2087 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2088 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2089 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2090 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Aspen Ridge Apartments................... $ % $ Sutton Place Apartments.................. 51 North High Building...................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2091 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2092 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Your partnership has not paid distributions since 1990. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method S-50 2093 described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2094 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $3.42 to $55.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 51,878.6 units (representing less than 28.9% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from July 1, 1996 to June 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CONSOLIDATED CAPITAL PROPERTIES V REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $15.00 $35.00 (d) (d) Second Quarter.................................. 22.50 40.00 27.00 33.00 First Quarter................................... 17.00 55.00(c) 28.00 32.00 Fiscal Year Ended December 31, 1997: 19.00 19.00 Fourth Quarter.................................. 10.00 20.00 Third Quarter................................... 3.42 22.00 21.00 23.00 Second Quarter.................................. 4.42 26.00 19.00 22.00 First Quarter................................... 8.05 20.40 20.00 26.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 9.55 40.00 19.00 21.00 Third Quarter................................... 5.00 24.00 15.00 20.00 Second Quarter.................................. 9.33 25.60 -- -- First Quarter................................... 8.00 80.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 2095 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) The general partner has information that indicates this reported sales price represented a single, isolated transaction for a minimal number of units and such sales price was materially higher than the range of sales prices for all other transactions during the quarter. The purchase price is approximately 9% greater than the highest reported sales price of $32.00 per unit for other transactions during the six-month period prior to June 30, 1998. (d) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-53 2096 In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Aspen Ridge Apartments and Sutton Place Apartments were appraised in 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of each property. According to the appraisal reports, the scope of the appraisal included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of each of the properties specified in those appraisal reports was $9,100,000 for Aspen Ridge Apartments and $4,700,000 for Sutton Place Apartments. Copies of the summaries of the appraisals have been filed as exhibits to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for the partnership's other property in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $49.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 2097 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 2098 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 2099 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 2100 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 2101 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash From Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2013. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' and amended from time to time, or any successor to such unitholders' invested capital by investing, either statute) (the "Delaware Limited Partnership Act"), alone or in association with others, in a diversified provided that such business is to be conducted in a portfolio of income-producing properties, (2) provide manner that permits AIMCO to be qualified as a REIT, gains through potential appreciation of the properties, unless AIMCO ceases to qualify as a REIT. The AIMCO (3) build equity through reduction of mortgage loans, Operating Partnership is authorized to perform any and (4) provide tax-sheltered quarterly distributions from all acts for the furtherance of the purposes and operating; and (5) generate tax losses in excess of the business of the AIMCO Operating Partnership, provided tax-sheltered cash distributions during the initial that the AIMCO Operating Partnership may not take, or years of operation which may be used to offset taxable refrain from taking, any action which, in the judgment income from other sources. Subject to restrictions of its general partner could (i) adversely affect the contained in your partnership's agreement of limited ability of AIMCO to continue to qualify as a REIT, (ii) partnership, your partnership may perform all acts subject AIMCO to certain income and excise taxes, or necessary, advisable or convenient to the business of (iii) violate any law or regulation of any governmental your partnership including borrowing money and creating body or agency (unless such action, or inaction, is liens. 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.
S-59 2102 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 500,400 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner and its affiliates may funds or other assets to its subsidiaries or other acquire units from time to time on their own behalf and persons in which it has an equity investment, and such for their own benefit, provided that such right does persons may borrow funds from the AIMCO Operating not create any preferences in rights or benefits in Partnership, on terms and conditions established in the favor of such persons or permit them to buy units other sole and absolute discretion of the general partner. To than at the same cash price and on the same terms as the extent consistent with the business purpose of the are available to other non-affiliated limited partners. AIMCO Operating Partnership and the permitted Your partnership may not make any loans to the general activities of the general partner, the AIMCO Operating partner but the general partner may lend money to your Partnership may transfer assets to joint ventures, partnership on terms, as to interest rates and other limited liability companies, partnerships, finance charges and fees, not in excess of amount that corporations, business trusts or other business are charged by unrelated banks on comparable loans for entities in which it is or thereby becomes a the same purpose, and, if a property is involved, in participant upon such terms and subject to such the locality of the property. No prepayment charge or conditions consistent with the AIMCO Operating Part- penalty will be required by the general partner on a nership Agreement and applicable law as the general loan to your partnership. To the extent the general partner, in its sole and absolute discretion, believes partner lends proceeds to your partnership, on an to be advisable. Except as expressly permitted by the unsecured basis, such amounts will bear interest at an AIMCO Operating Partnership Agreement, neither the amount not to exceed the lesser of the actual cost to general partner nor any of its affiliates may sell, the general partner or the most recent prime rate of transfer or convey any property to the AIMCO Operating interest charged by Bank of America, N.A., San Partnership, directly or indirectly, except pursuant to Francisco main office, in effect on the date such loan transactions that are determined by the general partner if first created. Your partnership may not obtain in good faith to be fair and reasonable. long-term financing from the general partner, except that it may issue an "all-inclusive" or "wraparound" note if certain conditions are satisfied. Your partnership may not grant exclusive right to sell or exclusive employment to sell property for your partnership to the general partner. If certain conditions are satisfied, the general partner or an affiliate may provide insurance brokerage services to your partnership. The general partner may not cause your partnership to enter into any agreements with the general partner or its affiliates which are not subject to termination without penalty by either party upon not more than sixty days' written notice. Your partnership may not purchase or lease property in which a general partner has an interest and may not acquire property from any party in whom a general partner has an interest. Notwithstanding the foregoing and according to the terms of your partnership's agreement of limited partnership, the general partner may purchase property in its own name and temporarily hold title thereto for the purpose of facilitating the acquisition of such
S-60 2103 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP property or the borrowing of money or obtaining of financing for your partnership, or the completion of construction of the property, or any other purpose related to the business of your partnership, provided that such property is purchased by your partnership for a price no greater than the cost of such property to the general partner and provided there is no difference in interest rates of the loans secured by the property at the time acquired by the general partner and at the time acquired by your partnership, nor any other benefit to the general partner arising out of such transaction apart from compensation otherwise permitted by your partnership's agreement of limited partnership. Your partnership may not sell or lease property to the general partner.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 80% of the purchase price of all properties on a combined basis. The general partner will use its best efforts to obtain level payment financing on the most favorable terms available to your partnership and will not obtain first mortgage financing incurred in connection with property purchases, where a provision for a balloon payment is provided, which does not contain the following provisions, unless it obtains prior approval from the California Department of Corporations: (1) that such balloon payment will not be due and payable prior the greater of ten years or three years after the expected holding period from the later of the inception date of the loan or the acquisition date of the property and (2) that such loan will have regular payments in an amount which would be sufficient to self-liquidate the loan over a 20- to 30-year period. Secondary financing, if any, must be fully amortizing or, if not fully amortizing, must not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less than 10% of the purchase price of a property. Your partnership may not incur any non-recourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
S-61 2104 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to be partner, any officer or director of general partner or indemnified by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or nonperformance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding the foregoing, neither the Act of 1933. general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection
S-62 2105 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnifica- tion for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the general partners may remove the has exclusive management power over the business and general partner upon a vote of the holders of the affairs of the AIMCO Operating Partnership. The general majority of the outstanding units and the prior written partner may not be removed as general partner of the consent of the general partner. The limited partners AIMCO Operating Partnership by the OP Unitholders with may elect a general partner upon a vote of the limited or without cause. Under the AIMCO Operating Partnership partners owning a majority of the outstanding units. No Agreement, the general partner may, in its sole limited partner may substitute a transferee of his discretion, prevent a transferee of an OP Unit from units in such limited partner's place without the becoming a substituted limited partner pursuant to the consent of the general partner which may be withheld at AIMCO Operating Partnership Agreement. The general the sole discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with federal holders of a majority of the outstanding Common OP and state securities laws and to cure any ambiguities. Units, excluding AIMCO and certain other limited Other amendments to our partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership must be approved by the limited the AIMCO Operating Partnership Agreement may be partners owning more than 50% of the units. However, proposed by the general partner or by holders of a the limited partners may not amend your partnership's Majority in Interest. Following such proposal, the agreement of limited partnership (1) to extend your general partner will submit any proposed amendment to partnership term or (2) to alter the rights of the the OP Unitholders. The general partner will seek the general partner to receive compensation, return of written consent of the OP Unitholders on the proposed invested capital, allocations, and distributions, amendment or will call a meeting to vote thereon. See without the consent of the general partner. Also, a "Description of OP Units -- Amendment of the AIMCO unanimous vote of the limited partners is required to Operating Partnership Agreement" in the accompanying amend the provision in your partnership's agreement of Prospectus. limited partnership dealing with substituted limited partners.
Compensation and Fees Your general partner receives an annual management fee The general partner does not receive compensation for of up to 9% of Distributed Cash From Operations for its its services as general partner of the AIMCO Operating services as general partner of your partnership and may Partnership. However, the general partner is entitled also receive reimbursement for expenses incurred in its to payments, allocations and distributions in its capacity as general partner. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-63 2106 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, general Operating Partnership Agreement expressly limits the partner and its affiliates may engage in whatever liability of the general partner by providing that the activities they chose, whether the same are competitive general partner, and its officers and directors will with your partnership or otherwise, without having or not be liable or accountable in damages to the AIMCO incurring any obligation to offer any interest in such Operating Partnership, the limited partners or activities to your partnership or any party hereto. The assignees for errors in judgment or mistakes of fact or obligations of the parties are, therefore, limited law or of any act or omission if the general partner or solely to those arising from the acquisition and such director or officer acted in good faith. See holding of your partnership's properties. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-64 2107 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner; and approve other Preferred OP Units are outstand- proceedings, an assignment for the matters as otherwise provided in ing, in addition to any other vote benefit of creditors and certain your partnership's agreement of or consent of partners required by transfers by the general partner of limited partnership. Unless prior law or by the AIMCO Operating its interest in the AIMCO Operating consent Partnership Agree- Part-
S-65 2108 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS of the limited partners holding a ment, the affirmative vote or nership or the admission of a majority of the units of your consent of holders of at least 50% successor general partner. partnership is obtained, the of the outstanding Preferred OP general partner is prohibited from Units will be necessary for Under the AIMCO Operating Partner- (1) selling substantially all of effecting any amendment of any of ship Agreement, the general partner your partnership's assets in a the provisions of the Partnership has the power to effect the single sale or in multiple sales in Unit Designation of the Preferred acquisition, sale, transfer, the same 12-month period, except in OP Units that materially and exchange or other disposition of the orderly liquidation and winding adversely affects the rights or any assets of the AIMCO Operating up of the business, (2) pledging preferences of the holders of the Partnership (including, but not the credit of your partnership in Preferred OP Units. The creation or limited to, the exercise or grant any way except in the ordinary issuance of any class or series of of any conversion, option, course of business, (3) executing partnership units, including, privilege or subscription right or or delivering any assignment for without limitation, any partner- any other right available in the benefit of the creditors of ship units that may have rights connection with any assets at any your partnership, and (4) senior or superior to the Preferred time held by the AIMCO Operating releasing, assigning or OP Units, shall not be deemed to Partnership) or the merger, transferring a partnership claim, materially adversely affect the consolidation, reorganization or security, commodity or any other rights or preferences of the other combination of the AIMCO asset in your partnership without holders of Preferred OP Units. With Operating Partnership with or into full and adequate consideration. respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. A general partner may cause the Preferred OP Units shall have one dissolution of your partnership by (1) vote per Preferred OP Unit. The general partner may cause the retiring. Your partnership may be dissolution of the AIMCO Operating continued by the remaining general Partnership by an "event of partner or, if none, the limited withdrawal," as defined in the partners may agree to continue your Delaware Limited Partnership Act partnership by electing a successor (including, without limitation, general partner upon the vote of bankruptcy), unless, within 90 days holders of more than 50% of the after the withdrawal, holders of a units within 60 days after the "majority in interest," as defined retirement of the general partner. in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations (as defined in your provided, however, that at any time portion as the general partner may partnership's agreement of limited and from time to time on or after in its sole and absolute discretion partnership) are to be made the fifth anniversary of the issue determine, of Available Cash (as quarterly during the fiscal year date of the Preferred OP Units, the defined in the AIMCO Operating after the minimum units are sold. AIMCO Operating Partnership may Partnership Agreement) generated by The distributions payable to the adjust the annual distribution rate the AIMCO Operating Partnership partners are not fixed in amount on the Preferred OP Units to the during such quarter to the general and depend upon the operating lower of (i) % plus the annual partner, the special limited results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-66 2109 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may not sell, There is no public market for the There is no public market for the transfer, encumber or otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- dispose by operation of law or Preferred OP Units are not listed nership Agreement restricts the otherwise of the whole or any part on any securities exchange. The transferability of the OP Units. of his interest in your partnership Preferred OP Units are subject to Until the expiration of one year except by written instrument restrictions on transfer as set from the date on which an OP satisfactory in form to the general forth in the AIMCO Operating Unitholder acquired OP Units, partner, accompanied by the Partnership Agreement. subject to certain exceptions, such assurance of the genuineness and OP Unitholder may not transfer all effectiveness of each such Pursuant to the AIMCO Operating or any portion of its OP Units to signature and the obtaining of any Partnership Agreement, until the any transferee without the consent federal and/or state governmental expiration of one year from the of the general partner, which approval, if any, as may be date on which a holder of Preferred consent may be withheld in its sole reasonably required by the general OP Units acquired Preferred OP and absolute discretion. After the partner. A minimum of twelve units Units, subject to certain expiration of one year, such OP may be transferred, other than for exceptions, such holder of Unitholder has the right to transferors who reside in Missouri Preferred OP Units may not transfer transfer all or any portion of its at the time of transfer who are all or any portion of its Pre- OP Units to any person, subject to required to transfer a minimum of ferred OP Units to any transferee the satisfaction of certain twenty units, except for transfers without the consent of the general conditions specified in the AIMCO by gift or inheritance, intrafamily partner, which consent may be Operating Partnership Agreement, transfers, family dissolutions and withheld in its sole and absolute including the general partner's transfers to affiliates. No discretion. After the expiration of right of first refusal. See assignment is valid or effective one year, such holders of Preferred "Description of OP Units -- unless in compliance with the OP Units has the right to transfer Transfers and Withdrawals" in the conditions contained herein. No all or any portion of its Preferred accompanying Prospectus. partner may make any assignment of OP Units to any person, subject to all or any part of his interest if the satisfaction of said transfer or
S-67 2110 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS assignment would, when considered certain conditions specified in the After the first anniversary of with all other transfers made AIMCO Operating Partnership Agree- becoming a holder of Common OP during the same applicable 12-month ment, including the general Units, an OP Unitholder has the period, cause a termination of your partner's right of first refusal. right, subject to the terms and partnership for federal or any conditions of the AIMCO Operating applicable state income tax After a one-year holding period, a Partnership Agreement, to require purposes. Such transferee may be holder may redeem Preferred OP the AIMCO Operating Partnership to substituted as a limited partner Units and receive in exchange redeem all or a portion of the if, in addition to the above therefor, at the AIMCO Operating Common OP Units held by such party requirements: (1) the assignor Partnership's option, (i) subject in exchange for a cash amount based designates such intention in the to the terms of any Senior Units, on the value of shares of Class A instrument of assignment, (2) the cash in an amount equal to the Common Stock. See "Description of written consent of the general Liquidation Preference of the OP Units -- Redemption Rights" in partner is obtained, the granting Preferred OP Units tendered for the accompanying Prospectus. Upon of which is in the general redemption, (ii) a number of shares receipt of a notice of redemption, partner's sole discretion, (3) the of Class I Cumulative Preferred the AIMCO Operating Partnership assignment instrument is in form Stock of AIMCO that pay an may, in its sole and absolute and substance satisfactory to the aggregate amount of dividends yield discretion but subject to the general partner, (4) the assignor equivalent to the distributions on restrictions on the ownership of and assignee duly execute and the Preferred OP Units tendered for Class A Common Stock imposed under acknowledge such other instrument redemption and are part of a class AIMCO's charter and the transfer or instruments as the general or series of preferred stock that restrictions and other limitations partner may deem necessary or is then listed on the New York thereof, elect to cause AIMCO to desirable and (5) the assignee Stock Exchange or another national acquire some or all of the tendered accepts, adopts and approves in securities exchange, or (iii) a Common OP Units in exchange for writing all of the terms and number of shares of Class A Common Class A Common Stock, based on an provisions of your partnership's Stock of AIMCO that is equal in exchange ratio of one share of agreement of limited partnership. Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 2111 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 2112 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 2113 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 2114 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 2115 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 2116 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 2117 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 2118 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 2119 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee up to 9% of Distributed Cash From Operations for its services as general partner of your partnership and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursement totaling $158,000 in 1996, $151,000 in 1997 and $59,000 for the first six months of 1998. The property manager received management fees of $204,000 in 1996, $215,000 in 1997 and $116,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 2120 YOUR PARTNERSHIP GENERAL Consolidated Capital Properties V was organized on June 30, 1983, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three properties: Aspen Ridge Apartments, a 253-unit complex in West Chicago, Illinois; Sutton Place Apartments, a 201-unit complex in Corpus Christi, Texas; and 51 North High Building, a 86,000 square-foot office building in Columbus, Ohio. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 179,537.20 units of limited partnership interest issued and outstanding, which were held of record by 3,897 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated August 28, 1994, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that it expected that most sales will occur after a period of ownership extending from three to seven years, dependent on property performance, the then real estate and money markets, economic climate and income tax consequences, as well as a view towards achieving maximum capital appreciation. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-78 2121 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Notwithstanding the forgoing, neither the general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership must at all times maintain public liability insurance in amounts determined by the general partner for the protection of your partnership and cash of its members. S-79 2122 DISTRIBUTIONS Your partnership has not paid any distributions with respect to your units since 1990. The original cost per unit was $250. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 26.18% interest in your partnership, including 179,537.2 units held by us and the interest held by Concap Equities, Inc., as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $134,000 1995........................................................ 169,000 1996........................................................ 158,000 1997........................................................ 151,000 1998 (through June 30)...................................... 59,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $100,000 1995........................................................ 246,000 1996........................................................ 204,000 1997........................................................ 215,000 1998 (through June 30)...................................... 116,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 2123 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 2124 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Consolidated Capital Properties V appearing in Consolidated Capital Properties V Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 2125 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2126 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2127 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2128 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2133 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2134 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CONSOLIDATED CAPITAL PROPERTIES VI IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in one apartment property to holding an interest in our large portfolio of properties. In the future, the property owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2135 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Consolidated Capital Properties VI...................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-53 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-54 Summary of Reviews........................... S-55 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75 YOUR PARTNERSHIP............................... S-76 General...................................... S-76
i 2136
PAGE ---- Additional Information Concerning Your Partnership................................ S-76 Term of the Partnership...................... S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-76 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-77 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-78
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2137 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Consolidated Capital Properties VI. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2138 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2139 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $2.76 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a one apartment property to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2140 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $29.00 per unit from January 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2141 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of twelve units (except for units held by IRAs and Keogh Plans and except that if you reside in Louisiana at the time of transfer, you are required to tender a minimum of twenty units). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2142 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2143 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2144 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $29.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 2145 and manages one apartment property to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 2146 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 2147 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 2148 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 23.3% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 2149 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 2150 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 2151 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 2152 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 2153 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $1.00 to $29.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 2154 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to up to 9% of Distributed Cash From Operations (as defined in your partnership's agreement of limited partnership) received by the limited partners for its services as general partner of your partnership and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $59,000 for the first six months of 1998. The property manager received management fees of $42,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Consolidated Capital Properties VI was organized on May 22, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of one residential apartment complex, Colony of Springdale Apartments, a 261-unit complex in Springdale, Ohio. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. An affiliate of the general partner, which is a majority-owned subsidiary of AIMCO, serves as manager of the property owned by your partnership. As of December 31, 1997, there were S-18 2155 181,808 units of limited partnership interest issued and outstanding, which were held of record by 3,740 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2156 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2157
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2158 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2159
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2160 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2161 SUMMARY FINANCIAL INFORMATION OF CONSOLIDATED CAPITAL PROPERTIES VI The summary financial information of Consolidated Capital Properties VI for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Consolidated Capital Properties VI for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. CONSOLIDATED CAPITAL PROPERTIES VI
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- In thousands, except unit data --------------------------------------------------------------- OPERATING DATA: Total Revenues............................................ $ 887 $ 1,549 $6,598 $ 3,314 $ 3,361 Net Income (Loss)......................................... (55) (189) 3,359 (553) (750) Net Income (Loss) per limited partnership unit............ (0.30) (1.04) 18.49 (3.04) (4.13) ------ ------- ------ ------- ------- Distributions per limited partnership unit................ 2.76 -- -- -- -- ------ ------- ------ ------- -------
JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $6,174 $ 9,200 $6,225 $ 9,514 $ 9,854 Total Assets.............................................. 8,354 11,416 9,020 11,721 12,302 Notes Payable............................................. 4,375 10,129 4,407 10,139 10,314 Partners' Capital (Deficit)............................... 3,754 761 4,309 950 1,503
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING CONSOLIDATED CAPITAL PARTNERSHIP PROPERTIES VI ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $2.76 $0.00
S-25 2162 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $1.00 per unit to $29.00 per unit from January 1, 1997 to September 30, 1998. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's property by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the S-26 2163 property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages one apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. S-27 2164 UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $2.76 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 2165 RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the property owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 23.3% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In November, 1994, LP 6 Acceptance Corporation, then an affiliate of Insignia and now our S-29 2166 affiliate, commenced a tender offer pursuant to which it acquired units (representing approximately % of the number outstanding) at a cash purchase price of $ per unit on , 1998. Prior to such tender offer, MacKenzie Patterson, Inc., which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $22.00 per unit and purchased 7,914 shares in April, 1995. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to S-30 2167 continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. S-31 2168 - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2169 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2170 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of twelve units (except for units held by IRAs and Keogh Plans and except that if you reside in Louisiana at the time of transfer, you are required to tender a minimum of twenty units). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 2171 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2172 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2173 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2174 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2175 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2176 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2177 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2178 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 44,216 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 24.4% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2179 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2180 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2181 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2182 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2183 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2184 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Colony of Springdale Apartments $ % $
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2185 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2186 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $2.76 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 2187 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2188 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $1.00 to $29.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to June 30, 1998 an aggregate of 46,257 units (representing 25.51% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from April 1, 1996 to June 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. CONSOLIDATED CAPITAL PROPERTIES VI REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(A) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $10.00 $20.00 Second Quarter............................................ 11.83 26.00 First Quarter............................................. 7.00 29.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 1.00 20.30 Third Quarter............................................. 17.81 20.20 Second Quarter............................................ 11.05 20.13 First Quarter............................................. 9.00 24.85 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 15.03 18.00 Third Quarter............................................. 14.23 20.00 Second Quarter............................................ 17.35 21.00 First Quarter............................................. 5.00 8.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-52 2189 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed S-53 2190 by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. S-54 2191 SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure S-55 2192 and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 2193 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2015. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' and amended from time to time, or any successor to such unitholders' invested capital by investing, either statute) (the "Delaware Limited Partnership Act"), alone or in association with others, in a diversified provided that such business is to be conducted in a portfolio of income-producing properties, (2) provide manner that permits AIMCO to be qualified as a REIT, gains through potential appreciation of the properties, unless AIMCO ceases to qualify as a REIT. The AIMCO (3) build equity through reduction of mortgage loans, Operating Partnership is authorized to perform any and (4) provide tax-sheltered quarterly distributions from all acts for the furtherance of the purposes and operating, and (5) generate tax losses in excess of the business of the AIMCO Operating Partnership, provided tax-sheltered cash distributions during the initial that the AIMCO Operating Partnership may not take, or years of operation which may be used to offset taxable refrain from taking, any action which, in the judgment income from other sources. Subject to restrictions of its general partner could (i) adversely affect the contained in your partnership's agreement of limited ability of AIMCO to continue to qualify as a REIT, (ii) partnership, your partnership may perform all act subject AIMCO to certain income and excise taxes, or necessary, advisable or convenient to the business of (iii) violate any law or regulation of any governmental your partnership including borrowing money and creating body or agency (unless such action, or inaction, is liens. 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.
S-57 2194 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 400,400 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner and its affiliates may funds or other assets to its subsidiaries or other acquire units from time to time on their own behalf and persons in which it has an equity investment, and such for their own benefit, provided that such right does persons may borrow funds from the AIMCO Operating not create any preferences in rights or benefits in Partnership, on terms and conditions established in the favor of such persons or permit them to buy units other sole and absolute discretion of the general partner. To than at the same cash price and on the same terms as the extent consistent with the business purpose of the are available to other non-affiliated limited partners. AIMCO Operating Partnership and the permitted Your partnership may not make any loans to the general activities of the general partner, the AIMCO Operating partner but the general partner may lend money to your Partnership may transfer assets to joint ventures, partnership on terms, as to interest rates and other limited liability companies, partnerships, finance charges and fees, not in excess of amount that corporations, business trusts or other business are charged by unrelated banks on comparable loans for entities in which it is or thereby becomes a the same purpose, and, if a property is involved, in participant upon such terms and subject to such the locality of the property. No prepayment charge or conditions consistent with the AIMCO Operating Part- penalty will be required by the general partner on a nership Agreement and applicable law as the general loan to your partnership. To the extent the general partner, in its sole and absolute discretion, believes partner lends proceeds to your partnership, on an to be advisable. Except as expressly permitted by the unsecured basis, such amounts will bear interest at an AIMCO Operating Partnership Agreement, neither the amount not to exceed the lesser of the actual cost to general partner nor any of its affiliates may sell, the general partner or the most recent prime rate of transfer or convey any property to the AIMCO Operating interest charged by Bank of America, N.A., San Partnership, directly or indirectly, except pursuant to Francisco main office, in effect on the date such loan transactions that are determined by the general partner if first created. Your partnership may not obtain in good faith to be fair and reasonable. long-term financing from the general partner, except that it may issue an "all-inclusive" or "wraparound" note if certain conditions are satisfied. Your partnership may not grant exclusive right to sell or exclusive employment to sell property for your partnership to the general partner. The general partner may not cause your partnership to enter into any agreements with the general partner or its affiliates which are not subject to termination without penalty by either party upon not more than sixty days' written notice. Your partnership may not purchase or lease property in which the general partner has an interest and may not acquire property from any party in whom the general partner has an interest. Notwithstanding the foregoing and according to the terms of your partnership's agreement of limited partnership, the general partner may purchase property in its own name and temporarily hold title thereto for the purpose of facilitating the acquisition of such property or the borrowing of money or obtaining of financing for your partnership, or the completion of construction of the prop-
S-58 2195 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP erty, or any other purpose related to the business of your partnership, provided that such property is purchased by your partnership for a price no greater than the cost of such property to the general partner and provided there is no difference in interest rates of the loans secured by the property at the time acquired by the general partner and at the time acquired by your partnership, nor any other benefit to the general partner arising out of such transaction apart from compensation otherwise permitted by your partnership's agreement of limited partnership. Your partnership may not sell or lease property to the general partner.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 80% of the purchase price of all properties on a combined basis. The general partner will use its best efforts to obtain level payment financing on the most favorable terms available to your partnership and will not obtain first mortgage financing incurred in connection with property purchases, where a provision for a balloon payment is provided, which does not contain the following provisions, unless it obtains prior approval from the California Department of Corporations: (1) that such balloon payment will not be due and payable prior to the greater of ten years or three years after the expected holding period from the later of the inception date of the loan or the acquisition date of the property and (2) that such loan will have regular payments in an amount which would be sufficient to self-liquidate the loan over a 20- to 30-year period. Secondary financing, if any, must be fully amortizing, or, if not fully amortizing, must not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less than 10% of the purchase price of a property. Your partnership may not incur any non-recourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited partner requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
S-59 2196 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to be partner, any officer or director of general partner or indemnified by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or non-performance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding the foregoing, neither the Act of 1933. general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection
S-60 2197 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by such other person or entity unless; (i) the general partner or other persons or entities seeking indemnification are successful in de- fending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnifica- tion for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove or elect a has exclusive management power over the business and general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general owning a majority of the outstanding units. No limited partner may not be removed as general partner of the partner may substitute a transferee of his units in AIMCO Operating Partnership by the OP Unitholders with such limited partner's place without the consent of the or without cause. Under the AIMCO Operating Partnership general partner which may be withheld at the sole Agreement, the general partner may, in its sole discretion of the general partner. discretion, prevent a transferee of an 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 Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with federal holders of a majority of the outstanding Common OP and state securities laws and to cure any ambiguities. Units, excluding AIMCO and certain other limited Other amendments to your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership must be approved by the limited the AIMCO Operating Partnership Agreement may be partners owning more than 50% of the units. However, proposed by the general partner or by holders of a the limited partners may not amend your partnership's Majority in Interest. Following such proposal, the agreement of limited partnership (1) to extend your general partner will submit any proposed amendment to partnership term or (2) to alter the rights of the the OP Unitholders. The general partner will seek the general partner to receive compensation, return of written consent of the OP Unitholders on the proposed invested capital, allocations, and distributions, amendment or will call a meeting to vote thereon. See without the consent of the general partner. Also, a "Description of OP Units -- Amendment of the AIMCO unanimous vote of the limited partners is required to Operating Partnership Agreement" in the accompanying amend the provision in your partnership's agreement of Prospectus. limited partnership dealing with substituted limited partners.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual management fee equal to up to 9% of Distributed its services as general partner of the AIMCO Operating Cash From Operations (as defined in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership) received by the to payments, allocations and distributions in its limited partners for its services as general partner of capacity as general partner of the AIMCO Operating your partnership and may receive reimbursement for Partnership. In addition, the AIMCO Operating Part- expenses incurred in such capacity. nership 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.
S-61 2198 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, the Operating Partnership Agreement expressly limits the general partner and its affiliates may engage in liability of the general partner by providing that the whatever activities they choose, whether the same are general partner, and its officers and directors will competitive with your partnership or otherwise, without not be liable or accountable in damages to the AIMCO having or incurring any obligation to offer any Operating Partnership, the limited partners or interest in such activities to your partnership or any assignees for errors in judgment or mistakes of fact or party hereto. The obligations of the parties are, law or of any act or omission if the general partner or therefore, limited solely to those arising from the such director or officer acted in good faith. See acquisition and holding of your partnership's property. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-62 2199 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner; and approve other Preferred OP Units are outstand- proceedings, an assignment for the matters as otherwise provided in ing, in addition to any other vote benefit of creditors and certain your partnership's agreement of or consent of partners required by transfers by the general partner of limited partnership. Unless prior law or by the AIMCO Operating its interest in the AIMCO Operating consent Partnership Agree- Part-
S-63 2200 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS of the limited partners holding a ment, the affirmative vote or nership or the admission of a majority of the units of your consent of holders of at least 50% successor general partner. partnership is obtained, the of the outstanding Preferred OP general partner is prohibited from Units will be necessary for Under the AIMCO Operating Partner- (1) selling substantially all of effecting any amendment of any of ship Agreement, the general partner your partnership's assets in a the provisions of the Partnership has the power to effect the single sale or in multiple sales in Unit Designation of the Preferred acquisition, sale, transfer, the same 12-month period, except in OP Units that materially and exchange or other disposition of the orderly liquidation and winding adversely affects the rights or any assets of the AIMCO Operating up of the business, (2) pledging preferences of the holders of the Partnership (including, but not the credit of your partnership in Preferred OP Units. The creation or limited to, the exercise or grant any way except in the ordinary issuance of any class or series of of any conversion, option, course of business, (3) executing partnership units, including, privilege or subscription right or or delivering any assignment for without limitation, any partner- any other right available in the benefit of the creditors of ship units that may have rights connection with any assets at any your partnership, and (4) senior or superior to the Preferred time held by the AIMCO Operating releasing, assigning or OP Units, shall not be deemed to Partnership) or the merger, transferring a partnership claim, materially adversely affect the consolidation, reorganization or security, commodity or any other rights or preferences of the other combination of the AIMCO asset in your partnership without holders of Preferred OP Units. With Operating Partnership with or into full and adequate consideration. respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. A general partner may cause the Preferred OP Units shall have one dissolution of your partnership by (1) vote per Preferred OP Unit. The general partner may cause the retiring. Your partnership may be dissolution of the AIMCO Operating continued by the remaining general Partnership by an "event of partner or, if none, the limited withdrawal," as defined in the partners may agree to continue your Delaware Limited Partnership Act partnership by electing a successor (including, without limitation, general partner upon the vote of bankruptcy), unless, within 90 days holders of more than 50% of the after the withdrawal, holders of a units within 60 days after the "majority in interest," as defined retirement of the general partner. in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations (as defined in your provided, however, that at any time portion as the general partner may partnership's agreement of limited and from time to time on or after in its sole and absolute discretion partnership) are to be made the fifth anniversary of the issue determine, of Available Cash (as quarterly during the fiscal year date of the Preferred OP Units, the defined in the AIMCO Operating after the minimum units are sold. AIMCO Operating Partnership may Partnership Agreement) generated by The distributions payable to the adjust the annual distribution rate the AIMCO Operating Partnership partners are not fixed in amount on the Preferred OP Units to the during such quarter to the general and depend upon the operating lower of (i) % plus the annual partner, the special limited results and net sales or interest rate then applicable to partner and the holders of Common refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date the disposition of your of five years, and (ii) the annual established by the general partner partnership's assets. dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-64 2201 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may not sell, There is no public market for the There is no public market for the transfer, encumber or otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- dispose by operation of law or Preferred OP Units are not listed nership Agreement restricts the otherwise of the whole or any part on any securities exchange. The transferability of the OP Units. of his interest in your partnership Preferred OP Units are subject to Until the expiration of one year except by written instrument restrictions on transfer as set from the date on which an OP satisfactory in form to the general forth in the AIMCO Operating Unitholder acquired OP Units, partner, accompanied by the Partnership Agreement. subject to certain exceptions, such assurance of the genuineness and OP Unitholder may not transfer all effectiveness of each such Pursuant to the AIMCO Operating or any portion of its OP Units to signature and the obtaining of any Partnership Agreement, until the any transferee without the consent federal and/or state governmental expiration of one year from the of the general partner, which approval, if any, as may be date on which a holder of Preferred consent may be withheld in its sole reasonably required by the general OP Units acquired Preferred OP and absolute discretion. After the partner. A minimum of twelve units Units, subject to certain expiration of one year, such OP may be transferred, other than for exceptions, such holder of Unitholder has the right to transferors who reside in Louisiana Preferred OP Units may not transfer transfer all or any portion of its at the time of transfer who are all or any portion of its Pre- OP Units to any person, subject to required to transfer a minimum of ferred OP Units to any transferee the satisfaction of certain twenty units, except for transfers without the consent of the general conditions specified in the AIMCO by gift or inheritance, intrafamily partner, which consent may be Operating Partnership Agreement, transfers, family dissolutions and withheld in its sole and absolute including the general partner's transfers to affiliates. No discretion. After the expiration of right of first refusal. See assignment is valid or effective one year, such holders of Preferred "Description of OP Units -- unless in compliance with the OP Units has the right to transfer Transfers and Withdrawals" in the conditions contained herein. No all or any portion of its Preferred accompanying Prospectus. partner may make any assignment of OP Units to all or any
S-65 2202 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS part of his interest if said any person, subject to the transfer or assignment would, when satisfaction of certain conditions After the first anniversary of considered with all other transfers specified in the AIMCO Operating becoming a holder of Common OP made during the same applicable Partnership Agreement, including Units, an OP Unitholder has the 12-month period, cause a ter- the general partner's right of right, subject to the terms and mination of your partnership for first refusal. conditions of the AIMCO Operating federal or any applicable state Partnership Agreement, to require income tax purposes. Such After a one-year holding period, a the AIMCO Operating Partnership to transferee may be substituted as a holder may redeem Preferred OP redeem all or a portion of the limited partner if, in addition to Units and receive in exchange Common OP Units held by such party the above requirements: (1) the therefor, at the AIMCO Operating in exchange for a cash amount based assignor designates such intention Partnership's option, (i) subject on the value of shares of Class A in the instrument of assignment, to the terms of any Senior Units, Common Stock. See "Description of (2) the written consent of the gen- cash in an amount equal to the OP Units -- Redemption Rights" in eral partner is obtained, the Liquidation Preference of the the accompanying Prospectus. Upon granting of which is in the general Preferred OP Units tendered for receipt of a notice of redemption, partner's sole discretion, (3) the redemption, (ii) a number of shares the AIMCO Operating Partnership assignment instrument is in form of Class I Cumulative Preferred may, in its sole and absolute and substance satisfactory to the Stock of AIMCO that pay an discretion but subject to the general partner, (4) the assignor aggregate amount of dividends yield restrictions on the ownership of and assignee duly execute and equivalent to the distributions on Class A Common Stock imposed under acknowledge such other instrument the Preferred OP Units tendered for AIMCO's charter and the transfer or instruments as the general redemption and are part of a class restrictions and other limitations partner may deem necessary or or series of preferred stock that thereof, elect to cause AIMCO to desirable and (5) the assignee is then listed on the New York acquire some or all of the tendered accepts, adopts and approves in Stock Exchange or another national Common OP Units in exchange for writing all of the terms and securities exchange, or (iii) a Class A Common Stock, based on an provisions of your partnership's number of shares of Class A Common exchange ratio of one share of agreement of limited partnership. Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-66 2203 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 2204 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 2205 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 2206 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 2207 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 2208 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 2209 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 2210 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 2211 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to up to 9% of Distributed Cash From Operations received by the limited partners for its services as general partner of your partnership and may receive reimbursement for expenses incurred in such capacity. The general partner received management fees of $119,000 in 1996, $110,000 in 1997 and $33,000 for the first six months of 1998. The property manager received management fees of $160,000 in 1996, $152,000 in 1997 and $42,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-75 2212 YOUR PARTNERSHIP GENERAL Consolidated Capital Properties VI was organized on May 22, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of one residential apartment complex, Colony of Springdale Apartments, a 261-unit complex in Springdale, Ohio. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. An affiliate of the general partner, which is a majority-owned subsidiary of AIMCO, serves as manager of the property owned by your partnership. As of December 31, 1997, there were 181,808 units issued and outstanding, which were held of record by 3,740 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. S-76 2213 Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Notwithstanding the foregoing, neither the general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporations regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence. Your partnership must at all times maintain public liability insurance in amounts determined by the general partner for the protection of your partnership and cash of its members. S-77 2214 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $ .
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 2.76
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 23.27% interest in your partnership, including the interest held by ConCap Equities, Inc., as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 98,000 1995........................................................ 115,000 1996........................................................ 119,000 1997........................................................ 110,000 1998 (through June 30)...................................... 33,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $ 97,000 1995........................................................ 159,000 1996........................................................ 160,000 1997........................................................ 152,000 1998 (through June 30)...................................... 42,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-78 2215 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and S-79 2216 nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Consolidated Capital Properties VI appearing in Consolidated Capital Properties VI's Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 2217 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2218 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2219 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2220 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2222
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2223
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2224
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2225 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2226 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $7,552.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $6,749.46 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2227 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Davidson Diversified Real Estate I, L.P. ........... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 2228
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2229 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Davidson Diversified Real Estate I, L.P. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Davidson Diversified Properties, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2230 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2231 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $1,197.46 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2232 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $4.80 per unit to $8,000.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $7,552.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $6,749.46 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2233 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of one-fourth of a unit (except for units held by IRAs and Keogh Plans). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2234 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2235 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2236 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $7,552.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $6,749.46 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $4.80 per unit to $8,000.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 2237 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 2238 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 2239 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 2240 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently indirectly own, in the aggregate, approximately a 3.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 2241 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2242 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 2243 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2244 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2245 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $4.80 to $8,000.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2246 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 5% of your partnership's adjusted cash from operations for each year for its services as the general partner of your partnership so long as the limited partners receive 8% per annum on their capital investment, and also receives reimbursement for expenses incurred in such capacity. The general partner received total fees and reimbursements of $47,000 for the first six months of 1998. The property manager received management fees of $76,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's [properties] and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. S-18 2247 YOUR PARTNERSHIP Davidson Diversified Real Estate I, L.P. was organized on January 14, 1983, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Ashley Woods Apartments, a 352-unit complex in Cincinnati, Ohio; and Versailles on the Lake Apartments, a 156-unit complex in Fort Wayne, Indiana. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 751.59 units of limited partnership interest issued and outstanding, which were held of record by 1,039 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2248 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2249
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2250 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2251
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2252 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2253 SUMMARY FINANCIAL INFORMATION OF DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. The summary financial information of Davidson Diversified Real Estate I, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Davidson Diversified Real Estate I, L.P. for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. --------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, ------------------- ----------------------------- 1998 1997 1997 1996 1995 --------- ------- -------- -------- ------- (IN THOUSANDS, EXCEPT UNIT VALUE) OPERATING DATA: Total Revenues.............................................. $ 1,530 $ 1,487 $ 3,056 $ 2,998 $ 2,956 Net Income (Loss)........................................... (13) (3) (172) (49) 23 Net Income Loss) per limited partnership unit............... (15.97) (3.99) (216.87) (62.53) 28.65 Distributions per limited partnership unit.................. 1,197.46 254.13 254.13 509.59 194.62 JUNE 30, DECEMBER 31, ------------------- ----------------------------- 1998 1997 1997 1996 1995 --------- ------- -------- -------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $ 6,499 $ 6,411 $ 6,326 $ 6,583 $ 6,797 Total Assets................................................ 8,624 7,522 9,444 7,891 8,461 Notes Payable............................................... 10,438 8,491 10,505 8,537 8,622 Partners' Capital (Deficit)................................. (2,767) (1,685) (1,854) (1,481) (1,029)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING DAVIDSON DIVERSIFIED PARTNERSHIP REAL ESTATE I, L.P. ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $1,197.46 $254.13
S-25 2254 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $4.80 per unit to $8,000.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $7,552.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $6,749.46 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 2255 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 2256 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Distributions with respect to your units for the six months ended June 30, 1998 were $1,197.46 per unit (equivalent to $ on an annualized basis). Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 2257 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 3.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 2258 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of , 1998, the AIMCO Operating Partnership has made offers to the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer to purchase up to 140 of the outstanding units of your partnership (representing approximately 0.19% of the number outstanding) at a cash purchase price of $4,000 per unit. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer to purchase up to 4.9% of the outstanding units for $2,000 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 2259 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 2260 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2261 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2262 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of one-fourth of a unit (except for units held by IRAs and Keogh Plans). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 2263 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2264 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2265 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2266 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2267 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2268 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2269 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2270 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 63.55 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 8.46% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2271 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and S-43 2272 Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2273 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2274 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2275 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2276 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Ashley Woods Apartments............ $ % $ Versailles on the Lake Apartments.......................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2277 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2278 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $1,197.46 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 2279 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2280 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $4.80 to $8,000.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 85.5 units (representing less than 11.4% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ----------------------- ----------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter.............................. $ 225.19 $8,000.00 (d) (d) Second Quarter............................. 1,750.00 4,250.00 $4,400.00 $5,067.00 First Quarter.............................. 4,250.00 4,250.00 3,125.00 5,120.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................. 2,000.00 4,350.00 (c) (c) Third Quarter.............................. 1,600.00 5,400.00 2,400.00 4,550.00 Second Quarter............................. 2,000.00 4,383.56 4,383.00 4,800.00 First Quarter.............................. 1,000.00 4,550.00 4,593.00 4,793.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................. 1,600.00 4,550.00 (c) (c) Third Quarter.............................. 120.00 3,708.00 2,458.00 2,458.00 Second Quarter............................. 900.00 4,000.00 -- -- First Quarter.............................. 2,300.00 2,300.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 2281 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) No units were reported by The Partnership Spectrum as having been sold during this quarter. (d) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Ashley Woods Apartments was appraised in September 1997 by an independent, third party appraiser, Joseph J. Blake & Associates, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance S-53 2282 with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $11,750.00. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in August 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $7,552.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $6,759.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. S-54 2283 The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and S-55 2284 discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not S-56 2285 performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-57 2286 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 2287 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. Form of Organization and Assets Owned
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash From Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2007. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to invest in, hold and The purpose of the AIMCO Operating Partnership is to manage existing income-producing residential real conduct any business that may be lawfully conducted by estate and, to a lesser extent, existing commercial a limited partnership organized pursuant to the real estate. Subject to restrictions contained in your Delaware Revised Uniform Limited Partnership Act (as partnership's agreement of partnership, your amended from time to time, or any successor to such partnership may perform all acts necessary, advisable statute) (the "Delaware Limited Partnership Act"), or convenient to the business of your partnership, provided that such business is to be conducted in a including borrowing money and creating liens. 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.
S-59 2288 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership was authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 1,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, currently, the No action or consent by the OP Unitholders is required general partner is prohibited from issuing additional in connection with the admission of any additional OP units. The general partner of your partnership may not Unitholder. See "Description of OP Units -- Management issue units in exchange for property. by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of partnership, your The AIMCO Operating Partnership may lend or contribute partnership may not sell or lease any partnership funds or other assets to its subsidiaries or other property to any entity in which a general partner or an persons in which it has an equity investment, and such affiliate of a general partner has an interest, except persons may borrow funds from the AIMCO Operating under certain circumstances. Neither the general Partnership, on terms and conditions established in the partner nor its affiliates has the authority to grant sole and absolute discretion of the general partner. To to itself or an affiliate an exclusive listing for the the extent consistent with the business purpose of the sale of partnership assets. The general partner of your AIMCO Operating Partnership and the permitted partnership may not cause your partnership to enter activities of the general partner, the AIMCO Operating into any agreements with the general partner or its Partnership may transfer assets to joint ventures, affiliates which are not subject to termination without limited liability companies, partnerships, penalty by either party upon not more than 60 days corporations, business trusts or other business written notice. The general partner may not cause your entities in which it is or thereby becomes a partnership to lend money to the general partner or its participant upon such terms and subject to such affiliates. The general partner of your partnership may conditions consistent with the AIMCO Operating Part- purchase property in its own name or in the name of a nership Agreement and applicable law as the general nominee and temporarily hold title thereto for the partner, in its sole and absolute discretion, believes purpose of facilitating the acquisition or financing of to be advisable. Except as expressly permitted by the such property by your partnership if your partnership AIMCO Operating Partnership Agreement, neither the receives an opinion from its counsel that your general partner nor any of its affiliates may sell, partnership will be treated as the owner of the transfer or convey any property to the AIMCO Operating property for Federal income tax purposes. Affiliates of Partnership, directly or indirectly, except pursuant to the general partner are entitled to a property transactions that are determined by the general partner management fee for providing professional management in good faith to be fair and reasonable. services for the partnership properties. For residential properties, such fees are equal to 5% of the annual gross revenue for such properties. For industrial and commercial properties, such fees range from 3% to 6% of the gross revenue from such properties. The general partner may not receive any commission or fee for the placement of mortgage loans or trust deed loans or provide long-term secured loans or permanent financing to your partnership.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage or restrictions on borrowings, and the general partner has other lien on any of your partnership's investments. full power and authority to borrow money on behalf of The general partner may cause your partnership to the AIMCO Operating Partnership. The AIMCO Operating prepay, consolidate, refinance or otherwise modify any Partnership has credit agreements that restrict, among of your partnership's debt on such terms and in such other things, its ability to incur indebtedness. See amounts as the general partner deems to be in the best "Risk Factors -- Risks of Significant Indebtedness" in interests of your partnership. The general partner is the accompanying Prospectus. authorized to allow your
S-60 2289 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership to borrow money from certain lenders on a short-term basis. The general partner is authorized to sell certain properties owned by your partnership at a price equal to the amount your partnership paid for each property plus expenses incurred by your partnership in connection with the acquisition of each property in order to repay such short-term loans. The general partner may not pledge or mortgage an aggregate amount in excess of 75% of the combined purchase price of your partnership's properties. The general partner of your partnership may not, at one time, encumber 66 2/3 of your partnership's assets, except in connection with the refinancing of existing obligations. The general partner may not cause your partnership to finance the purchase of a property with an all-inclusive or "wraparound" note and mortgage unless certain conditions are met. The general partner may not incur any non-recourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan, any direct or indirect interest in the profit, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of partnership entitles a Each OP Unitholder has the right, upon written demand limited partner to inspect your partnership's books and with a statement of the purpose of such demand and at records, your partnership agreement, any separate such OP Unitholder's own expense, to obtain a current certificates of limited partnership and copies of each list of the name and last known business, residence or appraisal of partnership property. Your partnership is mailing address of the general partner and each other not required to furnish any limited partner with a copy OP Unitholder. of the certificate or certificates of limited partnership containing the most recent listing of partners' names and addresses and capital contributions except upon written request.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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.
S-61 2290 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Liability and Indemnification Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general not liable, responsible or accountable for any act or partner is not liable to the AIMCO Operating omission so long as such action or omission was Partnership for losses sustained, liabilities incurred performed in a manner determined in good faith to be or benefits not derived as a result of errors in within the scope of the general partner's authority and judgment or mistakes of fact or law of any act or to be in the best interests of your partnership, and so omission if the general partner acted in good faith. long as such party was not guilty of fraud, bad faith, The AIMCO Operating Partnership Agreement provides for negligence or misconduct. The general partner and its indemnification of AIMCO, or any director or officer of affiliates are entitled to indemnification by your AIMCO (in its capacity as the previous general partner partnership against any liability, loss or damage of the AIMCO Operating Partnership), the general incurred by them in connection with the business of partner, any officer or director of general partner or your partnership, provided that the activities of the the AIMCO Operating Partnership and such other persons general partner did not constitute fraud, bad faith, as the general partner may designate from and against negligence or misconduct. Such indemnity may be paid all losses, claims, damages, liabilities, joint or only from the assets of your partnership and not from several, expenses (including legal fees), fines, the assets of the limited partners. Notwithstanding any settlements and other amounts incurred in connection other provision to the contrary, the general partner with any actions relating to the operations of the and its affiliates will be liable and will not be AIMCO Operating Partnership, as set forth in the AIMCO entitled to indemnity for any loss, damage or cost Operating Partnership Agreement. The Delaware Limited resulting from violations of Federal or state Partnership Act provides that subject to the standards securities laws in connection with the units unless and restrictions, if any, set forth in its partnership there is a successful adjudication of the merits of agreement, a limited partnership may, and shall have each count involving such securities laws violations, the power to, indemnify and hold harmless any partner such claims have been dismissed with prejudice on the or other person from and against any and all claims and merits by the court of competent jurisdiction or a demands whatsoever. It is the position of the court of competent jurisdiction approves a settlement Securities and Exchange Commission that indemnification of such claims. In any claim for indemnification for of directors and officers for liabilities arising under Federal or state securities law violations, the party the Securities Act is against public policy and is seeking indemnification must place before the court the unenforceable pursuant to Section 14 of the Securities position of the SEC and any other applicable regulatory Act of 1933. agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove the has exclusive management power over the business and general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general owning more than 50% of the outstanding units. A partner may not be removed as general partner of the substitute general partner may be admitted with the AIMCO Operating Partnership by the OP Unitholders with consent of the general partner and of the limited or without cause. Under the AIMCO Operating Partnership partners owning more than 50% of the outstanding units. Agreement, the general partner may, in its sole The general partner may not admit additional general discretion, prevent a transferee of an OP Unit from partners without the consent of the limited partners becoming a substituted limited partner pursuant to the owning more than 50% of the units. No limited partner AIMCO Operating Partnership Agreement. The general may substitute a transferee of his units in such partner may exercise this right of approval to deter, limited partner's place without the consent of the delay or hamper attempts by persons to acquire a general partner, which may be withheld at the sole controlling interest in the AIMCO Operating Partner- discretion of the general partner. ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of partnership may be With the exception of certain circumstances set forth amended by the general partner without the consent of in the AIMCO Operating Partnership Agreement, whereby the limited partners if such amendment: (1) adds to the the general partner may, without the consent of the OP representation, duties or obligations of the general Unitholders, amend the AIMCO Operating Partnership partner or its affiliates or surrenders any right or Agreement, amendments to the AIMCO Operating power granted to the general partner or its affiliates Partnership Agreement require the consent of the for the benefit of the limited partners, (2) cures any holders of a majority of the outstanding Common OP ambiguity, corrects or supplements any provisions that Units, excluding AIMCO and certain other limited may be inconsistent with any other provision or makes exclusions (a "Majority in Interest"). Amendments to any other provision with respect to matters or the AIMCO Operating Partnership Agreement may be questions arising under your partnership's agreement of proposed by the general partner or by holders of a limited partnership consistent with the provisions of Majority in Interest. Following such proposal, the your partnership's agreement of limited partnership, general partner will submit any proposed amendment to provided that your partnership receives a written the OP Unitholders. The general partner will seek the opinion from its counsel that such
S-62 2291 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP amendment does not adversely affect the interests of written consent of the OP Unitholders on the proposed the limited partners, or (3) deletes or adds any amendment or will call a meeting to vote thereon. See provision required by any applicable law. Any amendment "Description of OP Units -- Amendment of the AIMCO that (1) makes a limited partner a general partner, (2) Operating Partnership Agreement" in the accompanying changes the liability of a limited partner, (3) alters Prospectus. the interest of the general or limited partners in net income or net loss or distributions from your partnership or (4) affects the status of your partnership as a partnership for federal income tax purposes may not be made without the consent of the partners to be adversely affected. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive a fee equal to 5% of Adjusted Cash From its services as general partner of the AIMCO Operating Operations for each year for its services as the Partnership. However, the general partner is entitled general partner of your partnership so long as the to payments, allocations and distributions in its limited partners receive 8% per annum on their capital capacity as general partner of the AIMCO Operating investment and may receive reimbursement for expenses Partnership. In addition, the AIMCO Operating Part- incurred in such capacity. nership 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 partnership, a Except for fraud, willful misconduct or gross limited partner is not liable for any of the expenses, negligence, no OP Unitholder has personal liability for liabilities or obligations of your partnership. No the AIMCO Operating Partnership's debts and limited partner is required to lend funds to your obligations, and liability of the OP Unitholders for partnership, or to make any further capital contribu- the AIMCO Operating Partnership's debts and obligations tion after its initial capital contribution is fully is generally limited to the amount of their invest- paid. Under applicable law, a limited partner may be ment in the AIMCO Operating Partnership. However, the liable to your partnership to the extent of previous limitations on the liability of limited partners for distributions made to him if your partnership does not the obligations of a limited partnership have not been have sufficient assets to discharge its liabilities. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner of your partnership may not possess Unless otherwise provided for in the relevant your partnership's property or assign rights in partnership agreement, Delaware law generally requires specific properties of your partnership for other than a general partner of a Delaware limited partnership to a partnership purpose. The general partner of your adhere to fiduciary duty standards under which it owes partnership has the fiduciary responsibility for the its limited partners the highest duties of good faith, safekeeping and use of all funds and assets of your fairness and loyalty and which generally prohibit such partnership, whether or not such funds and assets are general partner from taking any action or engaging in in the general partner's possession or control. The any transaction as to which it has a conflict of general partner may not employ or permit others to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership nor commingle funds of on behalf of the AIMCO Operating Partnership, a right your partnership with any other account. The general of first opportunity arrangement and other partner is re-
S-63 2292 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP quired to maintain certain financial records of your conflict avoidance agreements with various affiliates partnership and to prepare certain financial statements of the AIMCO Operating Partnership and the general of your partnership. The general partner and its partner, on such terms as the general partner, in its affiliates may engage in or possess an interest in any sole and absolute discretion, believes are advisable. other business or venture of every nature and The AIMCO Operating Partnership Agreement expressly description, including, but not limited to, the limits the liability of the general partner by ownership, financing, leasing, operation, management, providing that the general partner, and its officers brokerage and development of real property. Neither the and directors will not be liable or accountable in general partner nor its affiliates are required to damages to the AIMCO Operating Partnership, the limited present to your partnership any particular investment partners or assignees for errors in judgment or opportunity. The general partner and its affiliates mistakes of fact or law or of any act or omission if have the right to take such an opportunity for its own the general partner or such director or officer acted account or recommend such an opportunity to others. in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling holder of Preferred Unitholder to
S-64 2293 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS each partner to its pro rata share OP Units, when and as declared by such partner's pro rata share of of distributions to be made to the the board of directors of the cash distributions made from partners of your partnership. general partner of the AIMCO Available Cash (as such term is Operating Partnership, quarterly defined in the AIMCO Operating cash distribution at a rate of $ Partnership Agreement) to the per Preferred OP Unit, subject to partners of the AIMCO Operating adjustments from time to time on or Partnership. To the extent the after the fifth anniversary of the AIMCO Operating Partnership sells issue date of the Preferred OP or refinances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of partnership, upon the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning a Operating Partnership Agreement, have voting rights only with majority of the outstanding units, the holders of the Preferred OP respect to certain limited matters the limited partners may, subject Units will have the same voting such as certain amendments and to certain exceptions, amend your rights as holders of the Common OP termination of the AIMCO Operating partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain partnership, terminate your Units" in the accompanying transactions such as the partnership, remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale or encumbrance ing, in addition to any other vote benefit of creditors and certain of all or substantially all of the or consent of partners required by transfers by the general partner of assets of your partnership and law or by the AIMCO Operating its interest in the AIMCO Operating extend the term of your partnership Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- retiring. Your partnership may be be necessary for effecting any ship Agreement, the general partner continued by the remaining general amendment of any of the provisions has the power to effect the partner within 60 days after the of the Partnership Unit Desig- acquisition, sale, transfer, retirement of a general partner, nation of the Preferred OP Units exchange or other disposition of or, if none, the limited partners that materially and adversely any assets of the AIMCO Operating may agree to continue your affects the rights or preferences Partnership (including, but not partnership by electing a successor of the holders of the Preferred OP limited to, the exercise or grant general partner upon the vote of Units. The creation or issuance of of any conversion, option, holders of more than 50% of the any class or series of partnership privilege or subscription right or units within 90 days after the units, including, without any other right available in retirement of the general partner. limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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 ab-
S-65 2294 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS solute discretion, with or without the consent of the OP Unitholders. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made at provided, however, that at any time portion as the general partner may least once each calendar quarter. and from time to time on or after in its sole and absolute discretion The distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior
S-66 2295 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer There is no public market for the There is no public market for the one-fourth or more of a unit Preferred OP Units and the OP Units. The AIMCO Operating Part- (unless applicable laws require a Preferred OP Units are not listed nership Agreement restricts the smaller fraction to be trans- on any securities exchange. The transferability of the OP Units. ferred) to any person by a written Preferred OP Units are subject to Until the expiration of one year assignment, duly executed by the restrictions on transfer as set from the date on which an OP assignor of the units, the terms of forth in the AIMCO Operating Unitholder acquired OP Units, which are not contrary to any terms Partnership Agreement. subject to certain exceptions, such of your partnership agreement. The OP Unitholder may not transfer all limited partner wishing to transfer Pursuant to the AIMCO Operating or any portion of its OP Units to his units must notify the general Partnership Agreement, until the any transferee without the consent partner within 30 days after expiration of one year from the of the general partner, which assignment. A transfer is only date on which a holder of Preferred consent may be withheld in its sole allowed if, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignments taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for tax purposes ferred OP Units to any transferee the satisfaction of certain and the transferor and your without the consent of the general conditions specified in the AIMCO partnership receives a ruling from partner, which consent may be Operating Partnership Agreement, the IRS to such effect. Such withheld in its sole and absolute including the general partner's transferee may be substituted as a discretion. After the expiration of right of first refusal. See limited partner if, in addition to one year, such holders of Preferred "Description of OP Units -- the above requirements: (1) a OP Units has the right to transfer Transfers and Withdrawals" in the written assignment is duly executed all or any portion of its Preferred accompanying Prospectus. and acknowledged by the assignor OP Units to any person, subject to and assignee specifying the number the satisfaction of certain After the first anniversary of of units being assigned and the conditions specified in the AIMCO becoming a holder of Common OP intention of the assignor that the Operating Partnership Agreement, Units, an OP Unitholder has the assignee be substituted as a including the general partner's right, subject to the terms and limited partner, (2) the assignor right of first refusal. conditions of the AIMCO Operating or the assignee pays a transfer Partnership Agreement, to require fee, (3) an amendment to the After a one-year holding period, a the AIMCO Operating Partnership to certificate of limited partnership holder may redeem Preferred OP redeem all or a portion of the is filed, (4) the written consent Units and receive in exchange Common OP Units held by such party of the general partner to such therefor, at the AIMCO Operating in exchange for a cash amount based substitution must be obtained, and Partnership's option, (i) subject on the value of shares of Class A (5) the assignor and assignee have to the terms of any Senior Units, Common Stock. See "Description of complied with such other conditions cash in an amount equal to the OP Units -- Redemption Rights" in as set forth in your partnership's Liquidation Preference of the the accompanying Prospectus. Upon agreement of limited partnership. Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 2296 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 2297 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 2298 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 2299 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 2300 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 2301 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 2302 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 2303 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 2304 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to a fee equal to 5% of your partnership's adjusted cash from operations for each year for its services as the general partner of your partnership so long as the limited partners receive 8% per annum on their capital investment, and may receive reimbursement for expenses incurred in such capacity. The general partner received fees and reimbursements totaling $92,000 in 1996, $80,000 in 1997, and $47,000 for the first six months of 1998. The property manager received management fees of $149,000 in 1996, $151,000 in 1997 and $76,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 2305 YOUR PARTNERSHIP GENERAL Davidson Diversified Real Estate I, L.P. was organized on January 14, 1983, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Ashley Woods Apartments, a 352-unit complex in Cincinnati, Ohio and Versailles on the Lake Apartments, a 156-unit complex in Fort Wayne, Indiana. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 751.59 units issued and outstanding, which were held of record by 1,056 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated November 16, 1983, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell and/or refinance its properties three to seven years after their acquisition. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2007, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 2306 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership limits the liability of the general partner and its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership only to the extent that they are indemnified by your partnership for actions taken where the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any liability, loss or damage incurred by them in connection with the business of your partnership if the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. Such indemnity may be paid only from the assets of your partnership and not from the assets of the limited partners. Notwithstanding any other provision to the contrary, the general partner and its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of Federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance that insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. S-78 2307 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $20,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 194.62 January 1, 1996 - December 31, 1996......................... 509.59 January 1, 1997 - December 31, 1997......................... 254.13 January 1, 1998 - June 30, 1998............................. 1,197.46
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 3.4% interest in your partnership, including 17.75 units held by us and the interest held by Davidson Diversified Properties, Inc., as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $75,042 1995........................................................ 88,127 1996........................................................ 92,000 1997........................................................ 80,000 1998 (through June 30)...................................... 47,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $134,486 1995........................................................ 146,668 1996........................................................ 149,000 1997........................................................ 151,000 1998 (through June 30)...................................... 76,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 2308 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of S-80 2309 AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Davidson Diversified Real Estate I, L.P. appearing in Davidson Diversified Real Estate I, L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 2310 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2311 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2312 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2313 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2314
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2315
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2316
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2317
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2318 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2319 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $11,182.00 per unit and an affiliate estimated the net liquidation value of your units to be $10,924.92 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2320 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Davidson Diversified Real Estate II, L.P............ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 2321
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2322 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Davidson Diversified Real Estate II, L.P. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Davidson Diversified Properties, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2323 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2324 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $80.05 per unit for the year ended December 31, 1997. As of June 30, 1998, your partnership had not paid any distributions in 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2325 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, [your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and] the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $700.00 per unit to $8,100.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $11,182.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $10,924.92 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2326 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of one-fourth of your units (except for units held by IRAs and Keogh Plans). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2327 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2328 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2329 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $11,182.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $10,924.92 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $700.00 per unit to $8,100.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 2330 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 2331 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 2332 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 2333 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently indirectly own, in the aggregate, approximately a 4.71% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 2334 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2335 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 2336 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2337 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2338 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $700 to $8,100 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2339 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership, but may receive reimbursement for expenses incurred in such capacity. The general partner received total fees and reimbursements of $117,000 by your partnership for the first six months of 1998. The property manager received management fees of $215,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Davidson Diversified Real Estate II, L.P. was organized on June 29, 1984, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 2340 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of five properties: Big Walnut Apartments, a 251-unit complex in Columbus, Ohio; LaFontenay Apartments Phase I and II, a 260-unit complex in Louisville, Kentucky; The Trails Apartments, a 248-unit complex in Nashville, Tennessee; Greensprings Manor Apartments, a 582-unit complex in Indianapolis, Indiana; and The Shoppes at River Rock, a 120,000 square foot commercial shopping center complex in Murfreesboro, Tennessee. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 1,224.25 units of limited partnership interest issued and outstanding, which were held of record by 1,653 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2341 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2342
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2343 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2344
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2345 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2346 SUMMARY FINANCIAL INFORMATION OF DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. The summary financial information of Davidson Diversified Real Estate II, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Davidson Diversified Real Estate II, L.P. for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- OPERATING DATA: Total Revenues............................................ $ 4,563 $ 4,531 $ 8,976 $ 9,528 $ 8,615 Net Income/(Loss)......................................... (418) (235) (819) (307) (180) Net income (Loss) per limited partnership unit............ (334.90) (187.87) (655.91) (245.97) (169.79) Distributions per limited partnership unit................ -- -- 80.05 80.05 --
JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $23,151 $23,627 $23,281 $24,366 $25,342 Total Assets................................................ 25,952 26,509 26,521 27,108 27,800 Mortgage Notes Payable, including Accrued Interest.......... 26,517 26,451 26,807 26,629 26,964 Partners' Capital/(Deficit)................................. (2,081) (1,079) (1,663) (744) (337)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING DAVIDSON DIVERSIFIED REAL PARTNERSHIP ESTATE II, L.P. ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $80.05
S-25 2347 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $700.00 per unit to $8,100.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $11,182.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $10,924.92 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 2348 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 2349 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00 per unit. Your partnership made distributions of $80.05 each year in 1996 and 1997. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 2350 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently indirectly owns, in the aggregate, approximately a 4.7% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 2351 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer to purchase up to 400 of the outstanding units of your partnership at a cash purchase price of $6,000 per unit. Also in August 1998, Madison Partnership Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $3,000 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 2352 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 2353 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2354 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2355 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of one-fourth of your units (except for units held by IRAs and Keogh Plans). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 2356 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2357 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2358 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2359 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2360 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2361 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2362 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2363 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 38.75 units in your partnership were transferred during the twelve months ending December 31, 1997 (representing approximately 3.17% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2364 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2365 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the Complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2366 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2367 received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax S-46 2368 basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2369 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Big Walnut Apartments $ % $ Greenspring Manor Apartments LaFontenay Apartments (I&II) The Trails Apartments The Shoppes at River Rock
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2370 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2371 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00. Your partnership made distributions of $80.05 each year in 1996 and 1997. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." NO DISTRIBUTION RIDER In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating S-50 2372 Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2373 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $700 to $8,100 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 59.75 units (representing approximately 4.9% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. DAVIDSON DIVERSIFIED REAL ESTATE II, L.P. REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................. $3,200.00 $7,242.00 (c) (c) Second Quarter................................ 2,500.00 6,409.00 $6,850.00 $7,802.00 First Quarter................................. 5,400.00 5,500.00 6,850.00 7,013.00 Fiscal Year Ended December 31, 1997: Fourth Quarter................................ 700.00 7,391.00 (d) (d) Third Quarter................................. 3,000.00 8,100.00 6,350.00 8,100.00 Second Quarter................................ 1,200.00 3,000.00 (d) (d) First Quarter................................. 3,000.00 6,500.00 (d) (d) Fiscal Year Ended December 31, 1996: Fourth Quarter................................ 2,800.00 5,000.00 (d) (d) Third Quarter................................. 3,000.00 4,000.00 3,000.00 3,000.00 Second Quarter................................ 2,450.00 6,200.00 -- -- First Quarter................................. 937.50 4,000.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 2374 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. (d) No units were reported by The Partnership Spectrum as having been sold during this quarter. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in August 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $11,182.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full S-53 2375 for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $10,690. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-54 2376 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and S-55 2377 local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect S-56 2378 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 2379 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Adjusted Cash Flow from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2008. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to invest in, hold and The purpose of the AIMCO Operating Partnership is to manage existing income-producing residential real conduct any business that may be lawfully conducted by estate and, to a lesser extent, existing or to-be-built a limited partnership organized pursuant to the commercial real estate. Subject to restrictions Delaware Revised Uniform Limited Partnership Act (as contained in your partnership's agreement of partner- amended from time to time, or any successor to such ship, your partnership may perform all acts necessary, statute) (the "Delaware Limited Partnership Act"), advisable or convenient to the business of your provided that such business is to be conducted in a partnership, including borrowing money and creating manner that permits AIMCO to be qualified as a REIT, liens. 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.
S-58 2380 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership was authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 1,250 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, currently, the No action or consent by the OP Unitholders is required general partner is prohibited from issuing additional in connection with the admission of any additional OP units. The general partner of your partnership may not Unitholder. See "Description of OP Units -- Management issue units in exchange for property. by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of partnership, your The AIMCO Operating Partnership may lend or contribute partnership may not sell or lease any partnership funds or other assets to its subsidiaries or other property to any entity in which a general partner or persons in which it has an equity investment, and such affiliate of a general partner has an interest, except persons may borrow funds from the AIMCO Operating under certain circumstances. Neither the general Partnership, on terms and conditions established in the partner nor its affiliates has the authority to grant sole and absolute discretion of the general partner. To to themselves or an affiliate an exclusive listing for the extent consistent with the business purpose of the the sale of partnership assets. The general partner of AIMCO Operating Partnership and the permitted your partnership may not cause your partnership to activities of the general partner, the AIMCO Operating enter into any agreements with the general partner or Partnership may transfer assets to joint ventures, its affiliates which are not subject to termination limited liability companies, partnerships, without penalty by either party upon not more than 60 corporations, business trusts or other business days written notice. The general partner may not cause entities in which it is or thereby becomes a your partnership to lend money to the general partner participant upon such terms and subject to such or its affiliates. The general partner of your conditions consistent with the AIMCO Operating Part- partnership may purchase property in its own name or in nership Agreement and applicable law as the general the name of a nominee and temporarily hold title partner, in its sole and absolute discretion, believes thereto for the purpose of facilitating the acquisition to be advisable. Except as expressly permitted by the or financing of such property by your partnership if AIMCO Operating Partnership Agreement, neither the (1) the property is purchased by your partnership at a general partner nor any of its affiliates may sell, purchase price no greater than the price paid by the transfer or convey any property to the AIMCO Operating general partner plus closing costs, (2) there is no Partnership, directly or indirectly, except pursuant to difference in the interest rates on the loans secured transactions that are determined by the general partner by the property at the time it is acquired by the in good faith to be fair and reasonable. general partner and the time it is acquired by your partnership, (3) neither the general partner nor its affiliates received any economic advantage by reason of having held title to the property, and (4) at your partnership's expense, your partnership receives an opinion from its counsel that your partnership will be treated as the owner of the property for Federal income tax purposes. Affiliates of the general partner are entitled to a property management fee for providing professional property management services for the partnership properties. For residential properties, such fees are equal to 5% of the annual gross revenue from such properties. For industrial and commercial properties, such fees range from 1% to 6% of the gross revenue from such properties.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage or restrictions on borrowings, and the general partner has other lien on any full power
S-59 2381 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP of your partnership's investments. The general partner and authority to borrow money on behalf of the AIMCO may cause your partnership to prepay, consolidate, Operating Partnership. The AIMCO Operating Partnership refinance or otherwise modify any of your partnership's has credit agreements that restrict, among other debt on such terms and in such amounts as the general things, its ability to incur indebtedness. See "Risk partner deems to be in the best interests of your Factors -- Risks of Significant Indebtedness" in the partnership. The general partner is authorized to allow accompanying Prospectus. your partnership to borrow money from certain lenders on a short-term basis. The general partner is authorized to sell certain properties owned by your partnership at a price equal to the amount your partnership paid for each property plus expenses incurred by your partnership in connection with the acquisition of each property in order to repay such short-term loans. At no time may the general partner pledge or mortgage an aggregate amount in excess of 80% of (1) the purchase price of your partnership's properties or (2) the current market value of all partnership properties. The general partner of your partnership may not, at one time, encumber 75% of your partnership's assets, except in connection with the refinancing of existing obligations. The general partner may not cause your partnership to finance the purchase of a property with an all-inclusive or "wraparound" note and mortgage unless certain conditions are met.
Review of Investor Lists Your partnership's agreement of partnership entitles a Each OP Unitholder has the right, upon written demand limited partner to inspect your partnership's books and with a statement of the purpose of such demand and at records, your partnership agreement, any separate such OP Unitholder's own expense, to obtain a current certificates of limited partnership and copies of each list of the name and last known business, residence or appraisal of partnership property. Your partnership is mailing address of the general partner and each other not required to furnish any limited partner with a copy OP Unitholder. of the certificate or certificates of limited partnership containing the most recent listing of partners' names and addresses and capital contributions except upon written request.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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
S-60 2382 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Your partnership limits the liability of the general Notwithstanding anything to the contrary set forth in partner and its affiliates to your partnership or the the AIMCO Operating Partnership Agreement, the general limited partners for acts undertaken on behalf of your partner is not liable to the AIMCO Operating partnership only to the extent that they are Partnership for losses sustained, liabilities incurred indemnified by your partnership for actions taken where or benefits not derived as a result of errors in the general partner determined, in good faith, that the judgment or mistakes of fact or law of any act or course of conduct which caused the loss or liability omission if the general partner acted in good faith. was in or not opposed to the best interests of your The AIMCO Operating Partnership Agreement provides for partnership, provided that such loss, damage, indemnification of AIMCO, or any director or officer of liability, cost or expense was not the result of AIMCO (in its capacity as the previous general partner negligence or misconduct by such party. The general of the AIMCO Operating Partnership), the general partner and its affiliates are entitled to partner, any officer or director of general partner or indemnification by your partnership against any the AIMCO Operating Partnership and such other persons liability, loss or damage incurred by them in as the general partner may designate from and against connection with the business of your partnership if the all losses, claims, damages, liabilities, joint or general partner determined, in good faith, that the several, expenses (including legal fees), fines, course of conduct which caused the loss or liability settlements and other amounts incurred in connection was in or not opposed to the best interests of your with any actions relating to the operations of the partnership, provided that such loss, damage, AIMCO Operating Partnership, as set forth in the AIMCO liability, cost or expense was not the result of Operating Partnership Agreement. The Delaware Limited negligence or misconduct by such party. Such indemnity Partnership Act provides that subject to the standards may be paid only from the assets of your partnership and restrictions, if any, set forth in its partnership and not from the assets of the limited partners. agreement, a limited partnership may, and shall have Notwithstanding any other provision to the contrary, the power to, indemnify and hold harmless any partner the general partner and its affiliates will be liable or other person from and against any and all claims and and will not be entitled to indemnity for any loss, demands whatsoever. It is the position of the damage or cost resulting from violations of Federal or Securities and Exchange Commission that indemnification state securities laws in connection with the units of directors and officers for liabilities arising under unless there is a successful adjudication of the merits the Securities Act is against public policy and is of each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove the has exclusive management power over the business and general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general owning more than 50% of the outstanding units. A partner may not be removed as general partner of the substitute general partner may be admitted with the AIMCO Operating Partnership by the OP Unitholders with consent of the general partner and of the limited or without cause. Under the AIMCO Operating Partnership partners owning more than 50% of the outstanding units. Agreement, the general partner may, in its sole The general partner may not admit additional general discretion, prevent a transferee of an OP Unit from partners without the consent of the limited partners becoming a substituted limited partner pursuant to the owning more than 50% of the units. No limited partner AIMCO Operating Partnership Agreement. The general may substitute a transferee of his units in such partner may exercise this right of approval to deter, limited partner's place without the consent of the delay or hamper attempts by persons to acquire a general partner, which may be withheld at the sole controlling interest in the AIMCO Operating Partner- discretion of the general partner. ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of partnership may be With the exception of certain circumstances set forth amended by the general partner without the consent of in the AIMCO Operating Partnership Agreement, whereby the limited partners if such amendment: (1) adds to the the general partner may, without the consent of the OP representation, duties or obligations of the general Unitholders, amend the AIMCO Operating Partnership partner or its affiliates or surrenders any right or Agreement, amendments to the AIMCO Operating power granted to the general partner or its affiliates Partnership Agreement require the con- for the
S-61 2383 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP benefit of the limited partners, (2) cures any sent of the holders of a majority of the outstanding ambiguity, corrects or supplements any provisions that Common OP Units, excluding AIMCO and certain other may be inconsistent with any other provision or makes limited exclusions (a "Majority in Interest"). any other provision with respect to matters or Amendments to the AIMCO Operating Partnership Agreement questions arising under your partnership's agreement of may be proposed by the general partner or by holders of limited partnership consistent with the provisions of a Majority in Interest. Following such proposal, the your partnership's agreement of limited partnership, general partner will submit any proposed amendment to (3) deletes or adds any provision required by any the OP Unitholders. The general partner will seek the applicable law, (4) lessens the possibility, in the written consent of the OP Unitholders on the proposed general partner's opinion, that your limited amendment or will call a meeting to vote thereon. See partnerships units may be considered "plan assets" "Description of OP Units -- Amendment of the AIMCO under the Employee Retirement Income Security Act of Operating Partnership Agreement" in the accompanying 1971, as amended, (5) maintains the status of your Prospectus. partnership as a partnership and not an association for Federal income tax purposes, (6) reflects the addition or substitution of limited partners or any reduction of the partners' capital accounts or (7) adjusts certain provisions of your partnership's partnership agreement regarding partnership net income and net loss if such adjustments maintain your partnership's tax allocations as the result of any amendment to the Federal income tax laws or any new interpretation of the Federal income tax laws, provided that the general partner must receive an opinion from your partnership's counsel that such an adjustment to the net income and net loss provisions will not materially adversely affect the limited partners' interests in your partnership. Any amendment that (1) makes a limited partner a general partner, (2) changes the liability of a limited partner, (3) alters the interest of the general or limited partners in net income or net loss or distributions from your partnership or (4) affects the status of your partnership as a partnership for Federal income tax purposes may not be made without the consent of the limited partners owning more than 50% of the units. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership does not The general partner does not receive compensation for receive a fee for its services as general partner of its services as general partner of the AIMCO Operating your partnership but may receive reimbursement for Partnership. However, the general partner is entitled expenses incurred in such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 2384 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of partnership, a Except for fraud, willful misconduct or gross limited partner is not liable for any of the expenses, negligence, no OP Unitholder has personal liability for liabilities or obligations of your partnership. No the AIMCO Operating Partnership's debts and limited partner is required to lend funds to your obligations, and liability of the OP Unitholders for partnership, or to make any further capital contribu- the AIMCO Operating Partnership's debts and obligations tion after its initial capital contribution is fully is generally limited to the amount of their invest- paid. Under applicable law, a limited partner may be ment in the AIMCO Operating Partnership. However, the liable to your partnership to the extent of previous limitations on the liability of limited partners for distributions made to him if your partnership does not the obligations of a limited partnership have not been have sufficient assets to discharge its liabilities. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner of your partnership may not possess Unless otherwise provided for in the relevant your partnership's property or assign rights in partnership agreement, Delaware law generally requires specific properties of your partnership for other than a general partner of a Delaware limited partnership to a partnership purpose. The general partner of your adhere to fiduciary duty standards under which it owes partnership has the fiduciary responsibility for the its limited partners the highest duties of good faith, safekeeping and use of all funds and assets of your fairness and loyalty and which generally prohibit such partnership, whether or not such funds and assets are general partner from taking any action or engaging in in the general partner's possession or control. The any transaction as to which it has a conflict of general partner may not employ or permit others to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership nor commingle funds of on behalf of the AIMCO Operating Partnership, a right your partnership with any other account. The general of first opportunity arrangement and other conflict partner is required to maintain certain financial avoidance agreements with various affiliates of the records of your partnership and to prepare certain AIMCO Operating Partnership and the general partner, on financial statements of your partnership. The general such terms as the general partner, in its sole and partner and its affiliates may engage in or possess an absolute discretion, believes are advisable. The AIMCO interest in any other business or venture of every Operating Partnership Agreement expressly limits the nature and description, including, but not limited to, liability of the general partner by providing that the the ownership, financing, leasing, operation, general partner, and its officers and directors will management, brokerage and development of real property. not be liable or accountable in damages to the AIMCO Neither the general partner nor its affiliates are Operating Partnership, the limited partners or required to present to your partnership any particular assignees for errors in judgment or mistakes of fact or investment opportunity. The general partner and its law or of any act or omission if the general partner or affiliates have the right to take such an opportunity such director or officer acted in good faith. See for its own account or recommend such an opportunity to "Description of OP Units -- Fiduciary Responsibilities" others. in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 2385 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of partnership, upon the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning a Operating Partnership Agreement, have voting rights only with majority of the outstanding units, the holders of the Preferred OP respect to certain limited matters the limited partners may, subject Units will have the same voting such as certain amendments and to certain exceptions, amend your rights as holders of the Common OP termination of the AIMCO Operating partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain partnership, terminate your Units" in the accompanying transactions such as the partnership, remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale or encumbrance ing, in addition to any other vote benefit of creditors and certain of all or substantially all of the or consent of partners required by transfers by the general partner of assets of your partnership, extend law or by the AIMCO Operating its interest in the AIMCO Operating the term of your part- Partnership Agree- Part-
S-64 2386 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS nership, approve the voluntary ment, the affirmative vote or nership or the admission of a assignment of the general partner's consent of holders of at least 50% successor general partner. interest in your partnership and of the outstanding Preferred OP adopt material changes in the Units will be necessary for Under the AIMCO Operating Partner- investment objective and policies effecting any amendment of any of ship Agreement, the general partner of your partnership. the provisions of the Partnership has the power to effect the Unit Designation of the Preferred acquisition, sale, transfer, A general partner may cause the OP Units that materially and exchange or other disposition of dissolution of your partnership by adversely affects the rights or any assets of the AIMCO Operating retiring. Your partnership may be preferences of the holders of the Partnership (including, but not continued by the remaining general Preferred OP Units. The creation or limited to, the exercise or grant partner within 60 days after the issuance of any class or series of of any conversion, option, retirement of a general partner, partnership units, including, privilege or subscription right or or, if none, the limited partners without limitation, any partner- any other right available in may agree to continue your ship units that may have rights connection with any assets at any partnership by electing a successor senior or superior to the Preferred time held by the AIMCO Operating general partner upon the vote of OP Units, shall not be deemed to Partnership) or the merger, holders of more than 50% of the materially adversely affect the consolidation, reorganization or units within 90 days after the rights or preferences of the other combination of the AIMCO retirement of the general partner. holders of Preferred OP Units. With Operating Partnership with or into respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of adjusted cash from $ per Preferred OP Unit; tribute quarterly all, or such operations are to be made at least provided, however, that at any time portion as the general partner may once each semi-annual period within and from time to time on or after in its sole and absolute discretion 45 days after March 31 and the fifth anniversary of the issue determine, of Available Cash (as September 30. The distributions date of the Preferred OP Units, the defined in the AIMCO Operating payable to the partners are not AIMCO Operating Partnership may Partnership Agreement) generated by fixed in amount and depend upon the adjust the annual distribution rate the AIMCO Operating Partnership operating results and net sales or on the Preferred OP Units to the during such quarter to the general refinancing proceeds available from lower of (i) % plus the annual partner, the special limited the disposition of your interest rate then applicable to partner and the holders of Common partnership's assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-65 2387 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer There is no public market for the There is no public market for the one-fourth or more units (unless Preferred OP Units and the OP Units. The AIMCO Operating Part- applicable laws require a smaller Preferred OP Units are not listed nership Agreement restricts the fraction to be transferred) to any on any securities exchange. The transferability of the OP Units. person by a written assignment, Preferred OP Units are subject to Until the expiration of one year duly executed by the assignor of restrictions on transfer as set from the date on which an OP the units, the terms of which are forth in the AIMCO Operating Unitholder acquired OP Units, not contrary to any terms of your Partnership Agreement. subject to certain exceptions, such partnership agreement. The limited OP Unitholder may not transfer all partner wishing to transfer his Pursuant to the AIMCO Operating or any portion of its OP Units to units must notify the general Partnership Agreement, until the any transferee without the consent partner within 30 days after expiration of one year from the of the general partner, which assignment. A transfer is only date on which a holder of Preferred consent may be withheld in its sole allowed if, when added to all other OP Units acquired Preferred OP and absolute discretion. After the assignments taking place in the Units, subject to certain expiration of one year, such OP preceding 12 months, in the opinion exceptions, such holder of Unitholder has the right to of counsel to your partnership, Preferred OP Units may not transfer transfer all or any portion of its does not result in termination of all or any portion of its Pre- OP Units to any person, subject to your partnership for tax purposes ferred OP Units to any transferee the satisfaction of certain and the transferor and your part- without the consent of the general conditions specified in the AIMCO nership receives a ruling from the partner, which consent may be Operating Partnership Agreement, IRS to such effect. Such transferee withheld in its sole and absolute including the general partner's may be substituted as a limited discretion. After the expiration of right of first refusal. See partner if, in addition to the one year, such holders of Preferred "Description of OP Units -- above requirements: (1) a written OP Units has the right to transfer Transfers and Withdrawals" in the assignment is duly executed and all or any portion of its Preferred accompanying Prospectus. acknowledged by the assignor and OP Units to any person, subject to assignee speci- the satisfaction of
S-66 2388 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS fying the number of units being certain conditions specified in the After the first anniversary of assigned and the intention of the AIMCO Operating Partnership Agree- becoming a holder of Common OP assignor that the assignee be ment, including the general Units, an OP Unitholder has the substituted as a limited partner, partner's right of first refusal. right, subject to the terms and (2) the assignor or the assignee conditions of the AIMCO Operating pays a transfer fee, (3) an After a one-year holding period, a Partnership Agreement, to require amendment to the certificate of holder may redeem Preferred OP the AIMCO Operating Partnership to limited partnership is filed, (4) Units and receive in exchange redeem all or a portion of the the written consent of the general therefor, at the AIMCO Operating Common OP Units held by such party partner to such substitution must Partnership's option, (i) subject in exchange for a cash amount based be obtained, and (5) the assignor to the terms of any Senior Units, on the value of shares of Class A and assignee have complied with cash in an amount equal to the Common Stock. See "Description of such other conditions as set forth Liquidation Preference of the OP Units -- Redemption Rights" in in your partnership's agreement of Preferred OP Units tendered for the accompanying Prospectus. Upon limited partnership. redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the AIMCO Operating Partnership Stock of AIMCO that pay an may, in its sole and absolute aggregate amount of dividends yield discretion but subject to the equivalent to the distributions on restrictions on the ownership of the Preferred OP Units tendered for Class A Common Stock imposed under redemption and are part of a class AIMCO's charter and the transfer or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 2389 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 2390 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 2391 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 2392 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 2393 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 2394 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 2395 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 2396 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 2397 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership, but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $257,000 in 1996, $253,000 in 1997, and $117,000 for the first six months of 1998. The property manager received management fees of $381,000 in 1996, $436,000 in 1997 and $215,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 2398 YOUR PARTNERSHIP GENERAL Davidson Diversified Real Estate II, L.P. was organized on June 29, 1984, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of five properties: Big Walnut Apartments, a 251-unit complex in Columbus, Ohio; LaFontenay Apartments Phase I and II, a 260-unit complex in Louisville, Kentucky; The Trails Apartments, a 248-unit complex in Nashville, Tennessee; Greensprings Manor Apartments, a 582-unit complex in Indianapolis, Indiana; and The Shoppes at River Rock, a 120,000 square foot commercial shopping center complex in Murfreesboro, Tennessee. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 1,224.25 units of limited partnership interest issued and outstanding, which were held of record by 1,653 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated October 16, 1984, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell and/or refinance its properties three to seven years after their acquisition. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 2399 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership limits the liability of the general partner and its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership only to the extent that they are indemnified by your partnership for actions taken where the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any liability, loss or damage incurred by them in connection with the business of your partnership if the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. Such indemnity may be paid only from the assets of your partnership and not from the assets of the limited partners. Notwithstanding any other provision to the contrary, the general partner and its affiliates will not be entitled to indemnity from any loss, damage or cost resulting from violations of Federal or state securities laws in connection with the units unless there is a successful adjudication of the merits or each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance that insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. S-78 2400 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $20,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 80.05 January 1, 1997 - December 31, 1997......................... 80.05 January 1, 1998 - June 30, 1998............................. 0.00
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently indirectly owns, in the aggregate approximately a 4.7% interest in your partnership, including 34.5 units held by us, and the interest held by Davidson Diversified Properties Inc., as general partner of your partnership. In addition to the tender offers described under "Background and Reasons for the Offer -- Previous Tender Offers," AIMCO and its affiliates have engaged in the following transactions in units of your partnership within the past 60 days. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $203,109 1995........................................................ 173,000 1996........................................................ 257,000 1997........................................................ 253,000 1998 (through June 30)...................................... 117,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $355,541 1995........................................................ 370,000 1996........................................................ 381,000 1997........................................................ 436,000 1998 (through June 30)...................................... 215,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 2401 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT Merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 2402 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Davidson Diversified Real Estate II, L.P. appearing in Davidson Diversified Real Estate II, L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 2403 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2404 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2405 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2406 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2407
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2408
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2409
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2410
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2411 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2412 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DAVIDSON DIVERSIFIED REAL ESTATE III, L.P. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $4,415.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $4,353.60 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2413 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-17 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Davidson Diversified Real Estate III, L.P. ......... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76
i 2414
PAGE ---- YOUR PARTNERSHIP............................... S-77 General...................................... S-77 Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2415 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Davidson Diversified Real Estate III, L.P. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Davidson Diversified Properties, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2416 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2417 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: As of June 30, 1998, your partnership had not paid any distributions in 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2418 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $101.00 per unit to $3,200.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $4,415.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $4,353.60 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2419 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of one-fourth of a unit (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2420 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2421 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2422 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $4,415.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $4,353.60 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $101.00 per unit to $3,200.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 2423 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 2424 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 2425 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 2426 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently indirectly own, in the aggregate, approximately a 5.11% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 2427 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2428 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 2429 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2430 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2431 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $101.00 to $3,200.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2432 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 2% of adjusted cash from operations, and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $85,000 for the first six months of 1998. The property manager received management fees of $147,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Davidson Diversified Real Estate III, L.P. was organized on July 8, 1985, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 2433 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Plainview Apartments, a 480-unit complex in Louisville, Kentucky and Salem Courthouse Apartments, a 388-unit complex in Indianapolis, Indiana. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 1,011.5 units of limited partnership interest issued and outstanding, which were held of record by 1,370 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2434 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2435
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2436 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2437
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2438 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2439 SUMMARY FINANCIAL INFORMATION OF DAVIDSON DIVERSIFIED REAL ESTATE III, L.P. The summary financial information of Davidson Diversified Real Estate III, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Davidson Diversified Real Estate III, L.P. for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ----------------------------------------- 1998 1997 1997 1996 1995 ---------- ---------- ----------- ---------- ---------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues................................. $2,882 $2,789 $ 5,706 $5,800 $5,352 Net Income (Loss).............................. (477) (533) (1,168) (940) (997) Net income (loss) per limited partnership unit......................................... (461.69) (516.07) (1,131.63) (910.53) (965.79) Distribution per limited partnership unit...... -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $18,432 $19,403 $18,896 $19,962 $20,771 Total Assets................................................ 19,494 20,672 20,002 21,370 22,197 Notes Payable............................................... 23,792 23,890 23,842 23,936 24,022 Partners' Capital (Deficit)................................. (5,096) (3,984) (4,619) (3,451) (2,511)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING DAVIDSON DIVERSIFIED REAL PARTNERSHIP ESTATE III, L.P. ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 2440 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $101.00 per unit to $3,200.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $4,415.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $4,353.60 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 2441 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 2442 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 2443 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently indirectly owns, in the aggregate, approximately a 5.11% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 2444 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer to purchase up to 300 of the outstanding units of your partnership at a cash purchase price of $3,000 per unit. Also in August, 1998, Madison Partnership Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $700 per unit and purchased shares in , 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 2445 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 2446 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2447 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2448 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of one-fourth of a unit (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 2449 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2450 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2451 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2452 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2453 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2454 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2455 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2456 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 32 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 3.16% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2457 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2458 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2459 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2460 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2461 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2462 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Plainview Apartments........................ $ % $ Salem Courthouse Apartments.................
- - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2463 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2464 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 2465 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2466 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $101.00 to $3,200.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 64.75 units (representing less than 6.4% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. DAVIDSON DIVERSIFIED REAL ESTATE III, L.P. REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................. $ 101.00 $3,200.00 (e) (e) Second Quarter................................ 1,500.00 1,500.00 2,800.00 2,960.00 First Quarter................................. (c) (c) 2,500.00 2,500.00 Fiscal Year Ended December 31, 1997: Fourth Quarter................................ 1,900.00 2,596.00 (d) (d) Third Quarter................................. 1,900.00 2,650.00 2,650.00 2,650.00 Second Quarter................................ 1,000.00 1,900.00 1,900.00 1,900.00 First Quarter................................. 920.00 1,600.00 1,840.00 1,840.00 Fiscal Year Ended December 31, 1996: Fourth Quarter................................ 650.00 2,020.00 1,633.00 1,711.00 Third Quarter................................. (c) (c) 1,200.00 1,384.00 Second Quarter................................ N/A N/A -- -- First Quarter................................. N/A N/A -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 2467 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) No units were reported by the general partner as having been sold during this quarter. (d) No units were reported by The Partnership Spectrum as having been sold during this quarter. (e) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in August 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $4,415.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general S-53 2468 partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $3,654.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-54 2469 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and S-55 2470 local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect S-56 2471 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 2472 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Adjusted Cash From Operations (as defined of the AIMCO Operating Partnership's agreement of in your partnership's agreement of limited partner- limited partnership (the "AIMCO Operating Partnership ship). The termination date of your partnership is Agreement") or as provided by law. See "Description of December 31, 2010. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to invest in, hold and The purpose of the AIMCO Operating Partnership is to manage existing income-producing residential real conduct any business that may be lawfully conducted by estate and, to a lesser extent, existing or to-be-built a limited partnership organized pursuant to the commercial real estate. Subject to restrictions Delaware Revised Uniform Limited Partnership Act (as contained in your partnership's agreement of partner- amended from time to time, or any successor to such ship, your partnership may perform all acts necessary, statute) (the "Delaware Limited Partnership Act"), advisable or convenient to the business of your provided that such business is to be conducted in a partnership, including borrowing money and creating manner that permits AIMCO to be qualified as a REIT, liens. 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.
S-58 2473 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership was authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 3,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, currently, the No action or consent by the OP Unitholders is required general partner is prohibited from issuing additional in connection with the admission of any additional OP units. The general partner of your partnership may not Unitholder. See "Description of OP Units -- Management issue units in exchange for property. by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of partnership, your The AIMCO Operating Partnership may lend or contribute partnership may not sell or lease any partnership funds or other assets to its subsidiaries or other property to any entity in which a general partner or persons in which it has an equity investment, and such affiliate of a general partner has an interest or persons may borrow funds from the AIMCO Operating purchase or lease any property to your partnership, Partnership, on terms and conditions established in the except under certain circumstances. Neither the general sole and absolute discretion of the general partner. To partner nor its affiliates has the authority to grant the extent consistent with the business purpose of the to themselves or an affiliate an exclusive listing for AIMCO Operating Partnership and the permitted the sale of partnership assets. The general partner of activities of the general partner, the AIMCO Operating your partnership may not cause your partnership to Partnership may transfer assets to joint ventures, enter into any agreements with a general partner or its limited liability companies, partnerships, affiliates which are not subject to termination without corporations, business trusts or other business penalty by either party upon not more than 60 days entities in which it is or thereby becomes a written notice. The general partner may not cause your participant upon such terms and subject to such partnership to lend money to the general partner or its conditions consistent with the AIMCO Operating Part- affiliates. The general partner of your partnership may nership Agreement and applicable law as the general purchase property in its own name or in the name of a partner, in its sole and absolute discretion, believes nominee and temporarily hold title thereto for any to be advisable. Except as expressly permitted by the purpose beneficial to your partnership if your AIMCO Operating Partnership Agreement, neither the partnership receives an opinion from its counsel that general partner nor any of its affiliates may sell, your partnership will be treated as the owner of the transfer or convey any property to the AIMCO Operating property for Federal income tax purposes. Affiliates of Partnership, directly or indirectly, except pursuant to the general partner are entitled to a property manage- transactions that are determined by the general partner ment fee equal to 5% of the annual gross revenue from in good faith to be fair and reasonable. the partnership properties for providing professional property management services for residential properties, and from 1% to 6% for industrial and commercial properties. Neither the general partner nor its affiliates may enter into any contract with your partnership which would bind your partnership after the removal, bankruptcy or insolvency of a general partner, or continue the business with partnership assets after the occurrence of such an event.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage or restrictions on borrowings, and the general partner has other lien on any of your partnership's investments. full power and authority to borrow money on behalf of The general partner may cause your partnership to the AIMCO Operating Partnership. The AIMCO Operating prepay, consolidate, refinance or otherwise modify any Partnership has credit agreements that restrict, among of your partnership's debt on such terms and in such other things, its ability to incur indebtedness. See amounts as the general partner deems to be in the best "Risk Factors -- Risks of Significant Indebtedness" in interests of your partnership. The general partner is the accompanying Prospectus. authorized to allow your
S-59 2474 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership to borrow money from certain lenders on a short-term basis. The general partner is authorized to sell certain properties owned by your partnership at a price equal to the amount your partnership paid for each property plus expenses incurred by your partnership in connection with the acquisition of each property in order to repay such short-term loans. The general partner may not, at one time, pledge or mortgage an aggregate amount equal to 75% of the purchase price of your partnership's properties, except to refinance existing obligations. The general partner may not incur aggregate borrowings of your partnership in excess of the sum of (1) 80% of the aggregate value as determined by the lender as of the date of refinancing as to all partnership properties that have been refinanced and (2) 80% of the aggregate purchase price as to all partnership properties which have not been refinanced. The general partner may not cause your partnership to finance the purchase of a property with an all-inclusive or "wrap-around" note and mortgage unless certain conditions are met. If units in your partnership have been offered in California, your partnership may not incur mortgage financing which amortizes over more than a thirty-year period or which requires a balloon payment prior to the earlier of (1) ten years from the date your partnership acquires a property or (2) two years subsequent to the anticipated holding period of the property, but no sooner than seven years from the date your partnership acquired the property, except with respect to financing representing, in the aggregate, 25% or less than the total purchase price of the properties acquired. Your partnership may not incur nonrecourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan, any direct or indirect interest in the profit, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of partnership entitles a Each OP Unitholder has the right, upon written demand limited partner to inspect your partnership's books and with a statement of the purpose of such demand and at records, your partnership agreement, any separate such OP Unitholder's own expense, to obtain a current certificates of limited partnership and copies of each list of the name and last known business, residence or appraisal of partnership property. Your partnership is mailing address of the general partner and each other not required to furnish any limited partner with a copy OP Unitholder. of the certificate or certificates of limited partnership except upon written request. Your partnership may charge a reasonable charge for copying.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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
S-60 2475 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Your partnership limits the liability of the general Notwithstanding anything to the contrary set forth in partner and its affiliates to your partnership or the the AIMCO Operating Partnership Agreement, the general limited partners for acts undertaken on behalf of your partner is not liable to the AIMCO Operating partnership only to the extent that they are Partnership for losses sustained, liabilities incurred indemnified by your partnership for actions taken where or benefits not derived as a result of errors in the general partner determined, in good faith, that the judgment or mistakes of fact or law of any act or course of conduct which caused the loss or liability omission if the general partner acted in good faith. was in or not opposed to the best interests of your The AIMCO Operating Partnership Agreement provides for partnership, provided that such loss, damage, indemnification of AIMCO, or any director or officer of liability, cost or expense was not the result of AIMCO (in its capacity as the previous general partner negligence or misconduct by such party. The general of the AIMCO Operating Partnership), the general partner and its affiliates are entitled to partner, any officer or director of general partner or indemnification by your partnership against any the AIMCO Operating Partnership and such other persons liability, loss or damage incurred by them in as the general partner may designate from and against connection with the business of your partnership if the all losses, claims, damages, liabilities, joint or general partner determined, in good faith, that the several, expenses (including legal fees), fines, course of conduct which caused the loss or liability settlements and other amounts incurred in connection was in or not opposed to the best interests of your with any actions relating to the operations of the partnership, provided that such loss, damage, AIMCO Operating Partnership, as set forth in the AIMCO liability, cost or expense was not the result of Operating Partnership Agreement. The Delaware Limited negligence or misconduct by such party. Such indemnity Partnership Act provides that subject to the standards may be paid only from the assets of your partnership and restrictions, if any, set forth in its partnership and not from the assets of the limited partners. agreement, a limited partnership may, and shall have Notwithstanding any other provision to the contrary, the power to, indemnify and hold harmless any partner the general partner and its affiliates will be liable or other person from and against any and all claims and and will not be entitled to indemnify for any loss, demands whatsoever. It is the position of the damage or cost resulting from violations of Federal or Securities and Exchange Commission that indemnification state securities laws in connection with the units of directors and officers for liabilities arising under unless there is a successful adjudication of the merits the Securities Act is against public policy and is of each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of partnership, the Except in limited circumstances, the general partner limited partners may remove a general partner upon a has exclusive management power over the business and vote of the limited partners owning more than 50% of affairs of the AIMCO Operating Partnership. The general the outstanding units. A substitute general partner may partner may not be removed as general partner of the be admitted with the consent of the general partner and AIMCO Operating Partnership by the OP Unitholders with of the limited partners owning more than 50% of the or without cause. Under the AIMCO Operating Partnership outstanding units. The general partner may admit Agreement, the general partner may, in its sole additional general partners with the consent of a discretion, prevent a transferee of an OP Unit from majority in interest of the limited partners. A limited becoming a substituted limited partner pursuant to the partner may substitute a transferee of his units in AIMCO Operating Partnership Agreement. The general such limited partner's place with the consent of the partner may exercise this right of approval to deter, general partner. delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to
S-61 2476 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of partnership may be With the exception of certain circumstances set forth amended by the general partner without the consent of in the AIMCO Operating Partnership Agreement, whereby the limited partners if such amendment: (1) adds to the the general partner may, without the consent of the OP representation, duties or obligations of the general Unitholders, amend the AIMCO Operating Partnership partner or its affiliates or surrenders any right or Agreement, amendments to the AIMCO Operating power granted to the general partner or its affiliates Partnership Agreement require the consent of the for the benefit of the limited partners, (2) cures any holders of a majority of the outstanding Common OP ambiguity, corrects or supplements any provisions that Units, excluding AIMCO and certain other limited may be inconsistent with any other provision or makes exclusions (a "Majority in Interest"). Amendments to any other provision with respect to matters or the AIMCO Operating Partnership Agreement may be questions arising under your partnership's agreement of proposed by the general partner or by holders of a limited partnership consistent with the provisions of Majority in Interest. Following such proposal, the your partnership's agreement of limited partnership, general partner will submit any proposed amendment to (3) deletes or adds any provision required by any the OP Unitholders. The general partner will seek the applicable government agency, (4) maintains the status written consent of the OP Unitholders on the proposed of your partnership as an entity which is not taxable amendment or will call a meeting to vote thereon. See as a corporation for Federal income tax purposes, (5) "Description of OP Units -- Amendment of the AIMCO reflects the addition or substitution of limited Operating Partnership Agreement" in the accompanying partners or any reduction of the partners' capital Prospectus. accounts and (6) adjusts certain provisions of your partnership's partnership agreement regarding partnership net income and net loss if such adjustments maintain your partnership's tax allocations as the result of any amendment to the Federal income tax laws or any new interpretation of the Federal income tax laws, provided that the general partner must receive an opinion from your partnership's counsel that such an adjustment to the net income and net loss provisions will not materially adversely affect the limited partners' interests in your partnership. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive a fee equal to 2% of adjusted cash from its services as general partner of the AIMCO Operating operations for its services as general partner of your Partnership. However, the general partner is entitled partnership and also receives reimbursement for to payments, allocations and distributions in its expenses incurred in such capacity. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 2477 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of partnership, a Except for fraud, willful misconduct or gross limited partner is not liable for any the expenses, negligence, no OP Unitholder has personal liability for liabilities or obligations of your partnership. No the AIMCO Operating Partnership's debts and limited partner is required to lend funds to your obligations, and liability of the OP Unitholders for partnership, or to make any further capital the AIMCO Operating Partnership's debts and obligations contribution after its initial capital contribution is is generally limited to the amount of their invest- fully paid. Under applicable law, a limited partner may ment in the AIMCO Operating Partnership. However, the be liable to your partnership to the extent of previous limitations on the liability of limited partners for distributions made to him if your partnership does not the obligations of a limited partnership have not been have sufficient assets to discharge its liabilities. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner of your partnership may not possess Unless otherwise provided for in the relevant your partnership's property or assign rights in partnership agreement, Delaware law generally requires specific properties of your partnership for other than a general partner of a Delaware limited partnership to a partnership purpose. The general partner of your adhere to fiduciary duty standards under which it owes partnership has the fiduciary responsibility for the its limited partners the highest duties of good faith, safekeeping and use of all funds and assets of your fairness and loyalty and which generally prohibit such partnership, whether or not such funds and assets are general partner from taking any action or engaging in in the general partner's possession or control. The any transaction as to which it has a conflict of general partner may not employ or permit others to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership. The general partner on behalf of the AIMCO Operating Partnership, a right may not commingle funds of your partnership with any of first opportunity arrangement and other conflict other person or entity. The general partner, any of its avoidance agreements with various affiliates of the affiliates and any limited partners of your partnership AIMCO Operating Partnership and the general partner, on may engage in or possess an interest in any other such terms as the general partner, in its sole and business or venture of any nature and description, absolute discretion, believes are advisable. The AIMCO independently or with others, including, but not Operating Partnership Agreement expressly limits the limited to, the ownership, financing, leasing, liability of the general partner by providing that the operation, management, brokerage and development of general partner, and its officers and directors will real property. Neither the general partner nor its not be liable or accountable in damages to the AIMCO affiliates are required to present to your partnership Operating Partnership, the limited partners or any particular investment opportunity, regardless of assignees for errors in judgment or mistakes of fact or whether your partnership could take advantage of such law or of any act or omission if the general partner or an opportunity. Each general partner and its affiliates such director or officer acted in good faith. See have the right to take such an opportunity for its own "Description of OP Units -- Fiduciary Responsibilities" account or recommend such an opportunity to others. in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 2478 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of partnership, upon the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning a Operating Partnership Agreement, have voting rights only with majority of the outstanding units, the holders of the Preferred OP respect to certain limited matters the limited partners may, subject Units will have the same voting such as certain amendments and to certain exceptions, amend your rights as holders of the Common OP termination of the AIMCO Operating partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain partnership, terminate your Units" in the accompanying transactions such as the partnership, remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale or encumbrance ing, in addition to any other vote benefit of creditors and certain of all or substantially all of the or consent of partners required by transfers by the general partner of assets of your partnership, extend law or by the AIMCO Operating its interest in the AIMCO Operating the term of your part- Partnership Agree- Part-
S-64 2479 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS nership, approve the voluntary ment, the affirmative vote or nership or the admission of a assignment of the general partner's consent of holders of at least 50% successor general partner. interest in your partnership and of the outstanding Preferred OP adopt material changes in the Units will be necessary for Under the AIMCO Operating Partner- investment objective and policies effecting any amendment of any of ship Agreement, the general partner of your partnership. the provisions of the Partnership has the power to effect the Unit Designation of the Preferred acquisition, sale, transfer, A general partner may cause the OP Units that materially and exchange or other disposition of dissolution of your partnership by adversely affects the rights or any assets of the AIMCO Operating retiring. Your partnership may be preferences of the holders of the Partnership (including, but not continued by the remaining general Preferred OP Units. The creation or limited to, the exercise or grant partner within 60 days after the issuance of any class or series of of any conversion, option, retirement of a general partner, partnership units, including, privilege or subscription right or or, if none, the limited partners without limitation, any partner- any other right available in may agree to continue your ship units that may have rights connection with any assets at any partnership by electing a successor senior or superior to the Preferred time held by the AIMCO Operating general partner upon the vote of OP Units, shall not be deemed to Partnership) or the merger, holders of more than 50% of the materially adversely affect the consolidation, reorganization or units within 90 days after the rights or preferences of the other combination of the AIMCO retirement of the general partner. holders of Preferred OP Units. With Operating Partnership with or into respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Adjusted Cash From $ per Preferred OP Unit; tribute quarterly all, or such Operations are to be made at least provided, however, that at any time portion as the general partner may once each semi-annual period within and from time to time on or after in its sole and absolute discretion 45 days after March 31 and the fifth anniversary of the issue determine, of Available Cash (as September 30. The distributions date of the Preferred OP Units, the defined in the AIMCO Operating payable to the partners are not AIMCO Operating Partnership may Partnership Agreement) generated by fixed in amount and depend upon the adjust the annual distribution rate the AIMCO Operating Partnership operating results and net sales or on the Preferred OP Units to the during such quarter to the general refinancing proceeds available from lower of (i) % plus the annual partner, the special limited the disposition of your interest rate then applicable to partner and the holders of Common partnership's assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-65 2480 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer There is no public market for the There is no public market for the one-fourth or more of a unit, but Preferred OP Units and the OP Units. The AIMCO Operating Part- must transfer all of his units if a Preferred OP Units are not listed nership Agreement restricts the transfer would leave him with less on any securities exchange. The transferability of the OP Units. than one-fourth of a unit, to any Preferred OP Units are subject to Until the expiration of one year person by a written assignment, restrictions on transfer as set from the date on which an OP duly executed by the assignor of forth in the AIMCO Operating Unitholder acquired OP Units, the units, the terms of which are Partnership Agreement. subject to certain exceptions, such not contrary to any terms of your OP Unitholder may not transfer all partnership agreement. A limited Pursuant to the AIMCO Operating or any portion of its OP Units to partner may not transfer all or any Partnership Agreement, until the any transferee without the consent portion of his units to an expiration of one year from the of the general partner, which individual retirement account, date on which a holder of Preferred consent may be withheld in its sole Keogh plan, qualified pension, OP Units acquired Preferred OP and absolute discretion. After the profit-sharing or stock bonus plan Units, subject to certain expiration of one year, such OP or a tax-exempt organization. The exceptions, such holder of Unitholder has the right to limited partner wishing to transfer Preferred OP Units may not transfer transfer all or any portion of its his units must notify the general all or any portion of its Pre- OP Units to any person, subject to partner within 30 days after ferred OP Units to any transferee the satisfaction of certain assignment. A limited partner may without the consent of the general conditions specified in the AIMCO not transfer any units if the units partner, which consent may be Operating Partnership Agreement, sought to be assigned, when withheld in its sole and absolute including the general partner's combined with other units assigned discretion. After the expiration of right of first refusal. See within the preceding 12 months, one year, such holders of Preferred "Description of OP Units -- would, in the opinion of counsel OP Units has the right to transfer Transfers and Withdrawals" in the for your partnership, result in the all or any portion of its Preferred accompanying Prospectus. sale or exchange of 50% or more of OP Units to any person, subject to the units of the satisfaction of
S-66 2481 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership. Such a transfer certain conditions specified in the After the first anniversary of is only allowed if, at the expense AIMCO Operating Partnership Agree- becoming a holder of Common OP of the limited partner wishing to ment, including the general Units, an OP Unitholder has the assign his units, your partnership partner's right of first refusal. right, subject to the terms and obtains a private ruling by the IRS conditions of the AIMCO Operating that such a transfer does not After a one-year holding period, a Partnership Agreement, to require result in termination of your holder may redeem Preferred OP the AIMCO Operating Partnership to partnership for tax purposes. Such Units and receive in exchange redeem all or a portion of the transferee may be substituted as a therefor, at the AIMCO Operating Common OP Units held by such party limited partner if, in addition to Partnership's option, (i) subject in exchange for a cash amount based the above requirements: (1) a to the terms of any Senior Units, on the value of shares of Class A written assignment is duly executed cash in an amount equal to the Common Stock. See "Description of and acknowledged by the assignor Liquidation Preference of the OP Units -- Redemption Rights" in and assignee specifying the number Preferred OP Units tendered for the accompanying Prospectus. Upon of units being assigned and the redemption, (ii) a number of shares receipt of a notice of redemption, intention of the assignor that the of Class I Cumulative Preferred the AIMCO Operating Partnership assignee be substituted as a Stock of AIMCO that pay an may, in its sole and absolute limited partner, (2) the assignor aggregate amount of dividends yield discretion but subject to the or the assignee pays a transfer equivalent to the distributions on restrictions on the ownership of fee, (3) the partner gives writ- the Preferred OP Units tendered for Class A Common Stock imposed under ten consent to such substitution, redemption and are part of a class AIMCO's charter and the transfer and (4) the assignor and assignee or series of preferred stock that restrictions and other limitations have complied with such other is then listed on the New York thereof, elect to cause AIMCO to conditions as set forth in your Stock Exchange or another national acquire some or all of the tendered partnership's agreement of limited securities exchange, or (iii) a Common OP Units in exchange for partnership. number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 2482 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 2483 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 2484 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 2485 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 2486 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 2487 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 2488 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 2489 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 2490 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to an amount equal to 2% of adjusted cash from operations for its services as general partner of your partnership, and receives reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $174,000 in 1996, $130,000 in 1997, and $85,000 for the first six months of 1998. The property manager received management fees of $277,000 in 1996, $284,000 in 1997 and $147,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 2491 YOUR PARTNERSHIP GENERAL Davidson Diversified Real Estate III, L.P. was organized on July 8, 1985, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Plainview Apartments, a 480-unit complex in Louisville, Kentucky and Salem Courthouse Apartments, a 388-unit complex in Indianapolis, Indiana. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 1,011.5 units issued and outstanding, which were held of record by 1,370 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated October 28, 1985, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell and/or refinance its properties three to seven years after their acquisition. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2010, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 2492 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership limits the liability of the general partner and its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership only to the extent that they are indemnified by your partnership for actions taken where the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any liability, loss or damage incurred by them in connection with the business of your partnership if the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. Such indemnity may be paid only from the assets of your partnership and not from the assets of the limited partners. Notwithstanding any other provision to the contrary, the general partner and its affiliates will not be entitled to indemnity for any loss, damage or cost resulting from violations of Federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance that insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. S-78 2493 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $20,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 0.00
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently indirectly owns, in the aggregate, approximately a 5.11% interest in your partnership, including 32.75 units held by us and the interest held by Davidson Diversified Properties, Inc., as general partner of your partnership. In addition to the tender offers described under "Background and Reasons for the Offer -- Previous Tender Offers," AIMCO and its affiliates have engaged in the following transactions in units of your partnership within the past 60 days. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 84,506 1995........................................................ 88,952 1996........................................................ 174,000 1997........................................................ 130,000 1998 (through June 30)...................................... 85,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $266,233 1995........................................................ 261,237 1996........................................................ 277,000 1997........................................................ 284,000 1998 (through June 30)...................................... 147,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 2494 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 2495 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Davidson Diversified Real Estate III, L.P. appearing in Davidson Diversified Real Estate III, L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 2496 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2497 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2498 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2499 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2500
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2501
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2502
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2503
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2504 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2505 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DAVIDSON GROWTH PLUS, L.P. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $578.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $555.27 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2506 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units.. S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Davidson Growth Plus, L.P........................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75 YOUR PARTNERSHIP............................... S-76 General...................................... S-76
i 2507
PAGE ---- Additional Information Concerning Your Partnership................................ S-76 Originally Anticipated Term of the Partnership................................ S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2508 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Davidson Growth Plus, L.P. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Davidson Growth Plus GP Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2509 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2510 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $11.91 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2511 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $70.00 per unit to $962.50 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $578.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $555.27 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2512 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2513 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2514 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2515 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $578.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $555.27 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $70.00 per unit to $962.50 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 2516 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 2517 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, each of Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 2518 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 2519 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately an 11.39% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 2520 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2521 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 2522 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2523 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2524 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $70.00 to $962.50 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2525 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 2% of Adjusted Cash From Operations (as defined in your partnership's agreement of limited partnership) provided that the limited partners have received distributions equal to 10% of their capital invested in your partnership. The general partner also may receive reimbursement for expenses incurred in such capacity. The general partner received compensation and reimbursements equal to $75,000 from your partnership for the first six months of 1998. In addition, your partnership accrued $10,000 in management fees for 1998. The property manager received management fees of $135,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. S-18 2526 YOUR PARTNERSHIP Davidson Growth Plus, L.P. was organized on May 22, 1986 under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: The Fairway Apartments, a 256-unit complex in Plano, Texas and The Village Apartments, a 112-unit complex in Brandon, Florida and an 82.5% interest in a joint venture, which owns Brighton Crest Apartments, a 320-unit complex in Marietta, Georgia. The general partner of your partnership is Davidson Growth Plus GP Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 28,371.75 units of limited partnership interest issued and outstanding, which were held of record by 2,778 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2527 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2528
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) 4 20,758 Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2529 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2530
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2531 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2532 SUMMARY FINANCIAL INFORMATION OF DAVIDSON GROWTH PLUS, L.P. The summary financial information of Davidson Growth Plus, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Davidson Growth Plus, L.P. for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. DAVIDSON GROWTH PLUS, L.P.
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 IN THOUSANDS, EXCEPT UNIT DATA ------------ ------------ --------- --------- --------- OPERATING DATA: Total Revenues............................................ $ 2,617 $ 2,514 $ 5,232 $ 5,256 $ 4,911 Net Income(loss).......................................... 247 152 155 329 344 Net Income (loss) per limited partnership unit............ 8.46 5.18 5.29 11.25 11.75 Distributions per limited partnership unit................ 11.90 12.30 24.57 25.98 47.47
JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $14,363 $14,870 $14,596 $15,192 $15,719 Total Assets.............................................. 16,612 17,278 16,889 17,475 18,169 Notes Payable............................................. 11,895 12,076 11,987 12,162 12,322 Partners' Capital (Deficit)............................... 3,777 4,234 3,878 4,441 4,872
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP DAVIDSON GROWTH PLUS, L.P. ------------------------- --------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ----------- ------------- Cash distributions per unit outstanding................... $1.125 $1.85 $11.91 $24.57
S-25 2533 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $70.00 per unit to $962.50 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $578.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $555.27 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 2534 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 2535 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and, current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $11.91 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 2536 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, each of Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately an 11.39% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 2537 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer to purchase up to 9,000 of the outstanding units of your partnership at a cash purchase price of $400 per unit and units were purchased on , 1998. Prior to such tender offer, in August 1998 Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $210 per unit and units were purchased on , 1998. In December 1995, DGP Acquisition, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 2,049 units (representing approximately 7.22% of the number outstanding) at a cash purchase price of $240 per unit on January 16, 1996. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 2538 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 2539 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2540 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2541 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 2542 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2543 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2544 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2545 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2546 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2547 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2548 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2549 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1,627 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 5.73% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2550 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2551 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2552 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2553 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2554 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2555 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- The Fairway Apartments................... $ % $ The Village Apartments................... Brighton Crest Apartments (joint venture)...............................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2556 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2557 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $11.91 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 2558 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2559 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $70.00 to $962.50 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 2,789 units (representing approximately 9.83% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. DAVIDSON GROWTH PLUS, L.P. REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $ 70.00 $962.50 (c) (c) Second Quarter.................................. 305.21 500.00 $320.00 $336.00 First Quarter................................... 315.28 531.16 336.00 336.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 328.00 500.00 275.00 316.00 Third Quarter................................... 175.00 474.00 260.00 340.00 Second Quarter.................................. 130.00 328.00 226.00 328.00 First Quarter................................... 100.00 285.00 250.00 325.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 175.00 265.00 281.00 322.00 Third Quarter................................... 200.00 263.00 213.00 265.00 Second Quarter.................................. 130.00 215.00 -- -- First Quarter................................... 130.00 474.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 2560 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $578.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account S-53 2561 (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $489.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York S-54 2562 Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive S-55 2563 information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that S-56 2564 would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 2565 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash From Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2011. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities The nature of the business to be conducted or promoted The purpose of the AIMCO Operating Partnership is to by your partnership is to invest in, hold and manage conduct any business that may be lawfully conducted by existing residential and commercial real estate and to a limited partnership organized pursuant to the sell and collect the receivables derived from such Delaware Revised Uniform Limited Partnership Act (as properties. Subject to restrictions contained in your amended from time to time, or any successor to such partnership's agreement of partnership, your statute) (the "Delaware Limited Partnership Act"), partnership may perform all acts necessary, advisable provided that such business is to be conducted in a or convenient to the business of your partnership, manner that permits AIMCO to be qualified as a REIT, including borrowing money and creating liens. 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.
S-58 2566 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 50,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not grant the general funds or other assets to its subsidiaries or other partner or any of its affiliates an exclusive listing persons in which it has an equity investment, and such for the sale of your partnership assets, or acquire persons may borrow funds from the AIMCO Operating property from or sell or lease property to any entity Partnership, on terms and conditions established in the in which a general partner or any affiliate has an sole and absolute discretion of the general partner. To interest, provided, however, subject to certain the extent consistent with the business purpose of the restrictions, an affiliate may lease commercial space AIMCO Operating Partnership and the permitted in a property owned by your partnership. Subject to activities of the general partner, the AIMCO Operating certain exceptions, the general partner or its Partnership may transfer assets to joint ventures, affiliates may not provide financing to your limited liability companies, partnerships, partnership by use of a wrap-around note and mortgage corporations, business trusts or other business ("all-inclusive" note and deed of trust). Your entities in which it is or thereby becomes a partnership may not enter into any agreements with a participant upon such terms and subject to such general partner or its affiliates which are not subject conditions consistent with the AIMCO Operating Part- to termination without penalty by either party upon not nership Agreement and applicable law as the general more than 60 days' written notice. Your partnership may partner, in its sole and absolute discretion, believes not lend money to the general partner or its to be advisable. Except as expressly permitted by the affiliates. 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 general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and, if security is required, to restrictions on borrowings, and the general partner has mortgage or subject any assets of your partnership to full power and authority to borrow money on behalf of any other security device, to obtain replacements of the AIMCO Operating Partnership. The AIMCO Operating any mortgage or other security device and to prepay, in Partnership has credit agreements that restrict, among whole or in part, refinance, increase, modify, consoli- other things, its ability to incur indebtedness. See date or extend any mortgage or other security device, "Risk Factors -- Risks of Significant Indebtedness" in all of the foregoing at such terms and in such amounts the accompanying Prospectus. as the general partner, in its sole discretion, deems to be in the best interests of your partnership. The general partner may not incur aggregate borrowings in excess of 80% of the aggregate value of all proper- ties as of the date of refinancing. The general partner may not cause your partnership to incur mortgage financing which, with level payments, would amortize such financing over a period in excess of 30 years. All such financing, including all-inclusive and wrap-around loans and interest-only loans, must provide that no
S-59 2567 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP balloon payments may become due sooner than the earlier of: (1) ten years from the date your partnership acquires the property, or (2) two years beyond the anticipated holding period of the property, provided in such case that a balloon payment may not become due sooner than seven years from the date your partner- ship acquires the property. The general partner may not allow any creditor who makes a non-recourse loan to your partnership to have, or to acquire at any time as a result of making such loan, any direct or indirect interest in the profit, gain, capital or other property of your partnership, other than as a secured creditor.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, the limited partners and their designated with a statement of the purpose of such demand and at representatives will be provided, upon written request such OP Unitholder's own expense, to obtain a current and after payment of any reasonable expenses for list of the name and last known business, residence or copying, a copy of your partnership's agreement of mailing address of the general partner and each other limited partnership and/or any amendment thereto OP Unitholder. containing the most current listing of partners' names, addresses and capital contributions.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, your partnership does not limit the the AIMCO Operating Partnership Agreement, the general liability of the general partner or its affiliates to partner is not liable to the AIMCO Operating your partnership or the limited partners for acts Partnership for losses sustained, liabilities incurred undertaken on behalf of your partnership. However, your or benefits not derived as a result of errors in partnership will, to the maximum extent permitted by judgment or mistakes of fact or law of any act or law, indemnify, save harmless and pay all judgments and omission if the general partner acted in good faith. claims against the general partner for any liability, The AIMCO Operating Partnership Agreement provides for loss or damage incurred by the indemnification of AIMCO,
S-60 2568 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner or by your partnership by reason of any or any director or officer of AIMCO (in its capacity as act performed or omitted to be performed by the general the previous general partner of the AIMCO Operating partner, including costs and reasonable attorneys' fees Partnership), the general partner, any officer or (which attorneys' fees may be paid as incurred) and director of general partner or the AIMCO Operating amount expended in the settlement of any claim of Partnership and such other persons as the general liability, loss or damage; provided that (1) the partner may designate from and against all losses, general partner must have determined, in good faith, claims, damages, liabilities, joint or several, that the course of conduct was in the best interests of expenses (including legal fees), fines, settlements and your partnership; (2) such liability or loss was not other amounts incurred in connection with any actions the result of negligence or misconduct by the general relating to the operations of the AIMCO Operating partner; and (3) any such indemnification will be Partnership, as set forth in the AIMCO Operating recoverable only from the assets of your partnership Partnership Agreement. The Delaware Limited Partnership and not from the assets of the limited partners. All Act provides that subject to the standards and judgments against your partnership and the general restrictions, if any, set forth in its partnership partner, where the general partner is entitled to agreement, a limited partnership may, and shall have indemnification, must first be satisfied from the the power to, indemnify and hold harmless any partner assets of your partnership before such general partner or other person from and against any and all claims and is responsible for these obligations. The general demands whatsoever. It is the position of the partner will not be indemnified for any liability, loss Securities and Exchange Commission that indemnification or damage incurred by it in connection with (1) any of directors and officers for liabilities arising under liability imposed by law, including liability for the Securities Act is against public policy and is negligence or misconduct or (2) any claim or settlement unenforceable pursuant to Section 14 of the Securities involving allegations of Federal or state securities Act of 1933. law was violated by the general partner unless: (1) the entity seeking indemnification is successful in defending such action on the merits and such indemnification is approved by a court of competent jurisdiction; (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or (3) a court of competent jurisdiction approves a settlement of the claims against the entity seeking indemnification involving securities law violations and finds that indemnification of the settlement and related costs should be made. Any person seeking indemnification must provide the court with the current position of the applicable state regulatory authority regarding indemnification for violations of securities law. Your partnership will not advance any funds to the general partners of their affiliates for legal expenses and other costs incurred as a result of any legal action initiated against such person by a limited partner.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning more than 50% of partner may not be removed as general partner of the the outstanding units. The managing general partner may AIMCO Operating Partnership by the OP Unitholders with not voluntarily withdraw from your partnership. A or without cause. Under the AIMCO Operating Partnership general partner (other than the managing general Agreement, the general partner may, in its sole partner) may withdraw from your partnership upon discretion, prevent a transferee of an OP Unit from providing 60 days' prior written notice to all the becoming a substituted limited partner pursuant to the limited partners and, in the opinion of counsel to your AIMCO Operating Partnership Agreement. The general partnership, such general partner's withdrawal will not partner may exercise this right of approval to deter, adversely affect the tax status of your partnership. delay or hamper attempts by persons to acquire a One or more additional general partners may be admitted controlling interest in the AIMCO Operating Partner- to your partnership at the discretion of the general ship. Additionally, the AIMCO Operating Partnership partner. Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representations, duties or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, for the benefit of the Partnership Agreement require the consent of the limited partners; (2) cures any ambiguity, corrects or holders of a majority of the outstanding Common OP supplements any provision which may be inconsistent Units, excluding AIMCO and certain other limited with any other exclusions
S-61 2569 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP provision or make any other provisions with respect to (a "Majority in Interest"). Amendments to the AIMCO matters or questions arising under your partnership's Operating Partnership Agreement may be proposed by the agreement of limited partnership which will not be general partner or by holders of a Majority in inconsistent with the provisions of your partnership's Interest. Following such proposal, the general partner agreement of limited partnership or violate any will submit any proposed amendment to the OP applicable state securities laws; (3) deletes or adds Unitholders. The general partner will seek the written any provision required by applicable law; or (4) consent of the OP Unitholders on the proposed amend- reflects the addition or substitution of limited ment or will call a meeting to vote thereon. See partners. Other amendments to your partnership's "Description of OP Units -- Amendment of the AIMCO agreement of limited partnership must be approved by Operating Partnership Agreement" in the accompanying the limited partners owning more than 50% of the Prospectus. outstanding units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive a fee equal to 2% of Adjusted Cash From its services as general partner of the AIMCO Operating Operations (as defined in your partnership's agreement Partnership. However, the general partner is entitled of limited partnership) provided that the limited to payments, allocations and distributions in its partners have received distributions equal to 10% of capacity as general partner of the AIMCO Operating their capital invested in your partnership and may also Partnership. In addition, the AIMCO Operating Part- receive reimbursement for expenses incurred in such nership is responsible for all expenses incurred capacity. 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 Except for fraud, willful misconduct or gross partnership, no limited partner is bound by, or negligence, no OP Unitholder has personal liability for personally liable for, the expenses, liabilities or the AIMCO Operating Partnership's debts and obligations of your partnership in excess of his obligations, and liability of the OP Unitholders for capital contribution and no limited partner is required the AIMCO Operating Partnership's debts and obligations to lend funds to your partnership, or make any further is generally limited to the amount of their invest- capital contributions after his capital contribution is ment in the AIMCO Operating Partnership. However, the paid, or to repay your partnership, any partner or any limitations on the liability of limited partners for creditor of your partnership all or any portion of any the obligations of a limited partnership have not been negative amount of such limited partner's capital clearly established in some states. If it were account. determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner has a fiduciary partnership agreement, Delaware law generally requires responsibility for the safekeeping and use of all funds a general partner of a Delaware limited partnership to and assets of your partnership, whether or not in its adhere to fiduciary duty standards under which it owes immediate possession or control and that it may not its limited partners the highest duties of good faith, employ or permit another to employ such funds or assets fairness and loyalty and which generally prohibit such in any manner except for the benefit of your general partner from taking any action or engaging in partnership. The general partner also may not commingle any transaction as to which it has a conflict of the funds of your partnership with the funds of any interest. The AIMCO Operating Partnership Agreement other person. The general partner may not employ, or expressly authorizes the general partner to enter into, permit to employ, the funds or assets of your on behalf of the AIMCO Operating Partnership, a right partnership in any manner except for the exclusive of first opportunity arrangement and other conflict benefit of your partnership. The general partner, any avoidance agreements with various affiliates of the limited partner or any affiliate may engage or possess AIMCO Operating Partnership and the general partner, on an interest in any other business venture of every such terms as the general partner, in its sole and nature and description, independently or with others absolute discretion, including, but not
S-62 2570 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP limited to, the ownership, financing, leasing, believes are advisable. The AIMCO Operating Partnership operation, management, brokerage and development of Agreement expressly limits the liability of the general real property. Subject to certain exceptions, neither partner by providing that the general partner, and its the general partner nor their affiliates are obligated officers and directors will not be liable or to present to your partnership any particular invest- accountable in damages to the AIMCO Operating ment opportunity, regardless of whether such Partnership, the limited partners or assignees for opportunity is of such character that your partnership errors in judgment or mistakes of fact or law or of any could take it if such opportunity were presented to act or omission if the general partner or such director your partnership, and each general partner and or officer acted in good faith. See "Description of OP affiliate has the right to take for its own account or Units -- Fiduciary Responsibilities" in the to recommend to others any such investment opportunity. accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quar-
S-63 2571 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS terly cash distribution at a rate Operating Partnership Agreement) to of $ per Preferred OP Unit, the partners of the AIMCO Operating subject to adjustments from time to Partnership. To the extent the time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with more than 50% of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may: Units will have the same voting such as certain amendments and (1) dissolve your partnership; (2) rights as holders of the Common OP termination of the AIMCO Operating remove the general partner; (3) Units. See "Description of OP Partnership Agreement and certain amend your partnership's agreement Units" in the accompanying transactions such as the of limited partnership, subject to Prospectus. So long as any institution of bankruptcy certain exceptions; (4) elect a Preferred OP Units are outstand- proceedings, an assignment for the successor general partner; and (5) ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale of or consent of partners required by transfers by the general partner of all or substantially all of the law or by the AIMCO Operating its interest in the AIMCO Operating assets of your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- being removed from office, be necessary for effecting any ship Agreement, the general partner withdrawing or becoming in- amendment of any of the provisions has the power to effect the solvent. Your partnership will not of the Partnership Unit Desig- acquisition, sale, transfer, be dissolved but will be continued nation of the Preferred OP Units exchange or other disposition of by the limited partners if: (1) the that materially and adversely any assets of the AIMCO Operating remaining general partner elects to affects the rights or preferences Partnership (including, but not continue the business within 60 of the holders of the Preferred OP limited to, the exercise or grant days following one of the above Units. The creation or issuance of of any conversion, option, events, or (2) if there is no any class or series of partnership privilege or subscription right or remaining general partner, the units, including, without any other right available in limited partners owning more than limitation, any partnership units connection with any assets at any 50% of the outstanding units elects that may have rights senior or time held by the AIMCO Operating a successor general partner. superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution
S-64 2572 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such from Operations are made within 45 provided, however, that at any time portion as the general partner may to 60 days after the end of each and from time to time on or after in its sole and absolute discretion semi-annual period. The distribu- the fifth anniversary of the issue determine, of Available Cash (as tions payable to the partners are date of the Preferred OP Units, the defined in the AIMCO Operating not fixed in amount and depend upon AIMCO Operating Partnership may Partnership Agreement) generated by the operating results and net sales adjust the annual distribution rate the AIMCO Operating Partnership or refinancing proceeds available on the Preferred OP Units to the during such quarter to the general from the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-65 2573 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights A limited partner may transfer all There is no public market for the There is no public market for the or part of his units to any person Preferred OP Units and the OP Units. The AIMCO Operating Part- if: (1) the transfer is not for Preferred OP Units are not listed nership Agreement restricts the less than five units and if the on any securities exchange. The transferability of the OP Units. transferor retains any units, the Preferred OP Units are subject to Until the expiration of one year transferor has not less than five restrictions on transfer as set from the date on which an OP units; (2) the transfer does not forth in the AIMCO Operating Unitholder acquired OP Units, violate any provision of your Partnership Agreement. subject to certain exceptions, such partnership's agreement of limited OP Unitholder may not transfer all partnership or any applicable Pursuant to the AIMCO Operating or any portion of its OP Units to securities laws; and (3) the Partnership Agreement, until the any transferee without the consent transfer of units when added to all expiration of one year from the of the general partner, which other assignments taking place in date on which a holder of Preferred consent may be withheld in its sole the preceding 12 months, in the OP Units acquired Preferred OP and absolute discretion. After the opinion of counsel to your Units, subject to certain expiration of one year, such OP partnership, does not terminate exceptions, such holder of Unitholder has the right to your partnership for tax purposes. Preferred OP Units may not transfer transfer all or any portion of its No assignee may become a substitute all or any portion of its Pre- OP Units to any person, subject to limited partner unless: (1) the ferred OP Units to any transferee the satisfaction of certain above requirements for a transfer without the consent of the general conditions specified in the AIMCO of a limited partner's are partner, which consent may be Operating Partnership Agreement, satisfied; (2) the written withheld in its sole and absolute including the general partner's assignment indicates the as- discretion. After the expiration of right of first refusal. See signee's intent to become a one year, such holders of Preferred "Description of OP Units -- substitute limited partner; (3) the OP Units has the right to transfer Transfers and Withdrawals" in the assignee executes a written all or any portion of its Preferred accompanying Prospectus. acceptance and adoption of your OP Units to any person, subject to partnership's agreement of limited the satisfaction of certain After the first anniversary of partnership; (4) the assignee pays conditions specified in the AIMCO becoming a holder of Common OP all reasonable expenses connected Operating Partnership Agreement, Units, an OP Unitholder has the to such assignment; (5) the including the general partner's right, subject to the terms and assignor and assignee execute and right of first refusal. conditions of the AIMCO Operating acknowledge any other instruments Partnership Agreement, to require that the general partner deems After a one-year holding period, a the AIMCO Operating Partnership to necessary or desirable; and (6) the holder may redeem Preferred OP redeem all or a portion of the general partner files an amendment Units and receive in exchange Common OP Units held by such party to the certificate of limited therefor, at the AIMCO Operating in exchange for a cash amount based partnership. Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-66 2574 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 2575 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 2576 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 2577 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 2578 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 2579 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 2580 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 2581 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 2582 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 2% of Adjusted Cash From Operations (as defined in your partnership's agreement of limited partnership) provided that the limited partners have received distributions equal to 10% of their capital invested in your partnership. The general partner also receives reimbursement for expenses incurred in such capacity. The general partner received compensation and reimbursements totaling $143,000 in 1996, $149,000 in 1997, and $75,000 for the first six months of 1998. In addition, your partnership accrued management fees of $18,000 in 1996, $19,000 in 1997 and $10,000 for the first six months of 1998. The property manager received management fees of $259,000 in 1996, $258,000 in 1997 and $135,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans S-75 2583 may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. YOUR PARTNERSHIP GENERAL Davidson Growth Plus, L.P. was organized on May 22, 1986, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: The Fairway Apartments, a 256-unit complex in Plano, Texas and The Village Apartments, a 112-unit complex in Brandon, Florida and an 82.5% interest in a joint venture, which owns Brighton Crest Apartments, a 320-unit complex in Marietta, Georgia. The general partner of your partnership is Davidson Growth Plus GP Corporation, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 28,371.5 units issued and outstanding, which were held of record by 2,778 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated August 13, 1986, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell and/or refinance its properties five to seven years after their acquisition. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2011, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited S-76 2584 partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership does not limit the liability of the general partner or its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will, to the maximum extent permitted by law, indemnify, save harmless and pay all judgments and claims against the general partner for any liability, loss or damage incurred by the general partner or by your partnership by reason of any act performed or omitted to be performed by the general partner, including costs and reasonable attorneys' fees (which attorneys' fees may be paid as incurred) and amount expended in the settlement of any claim of liability, loss or damage; provided that (1) the general partner must have determined, in good faith, that the course of conduct was in the best interests of your partnership; (2) such liability or loss was not the result of negligence or misconduct by the general partner; and (3) any such indemnification will be recoverable only from the assets of your partnership and not from the assets of the limited partners. All judgments against your partnership and the general partner, where the general partner is entitled to indemnification, must first be satisfied from the assets of your partnership before such general partner is responsible for these obligations. The general partner will not be indemnified for any liability, loss or damage incurred by it in connection with (1) any liability imposed by law, including liability for negligence or misconduct or (2) any claim or settlement involving allegations of Federal or state securities law were violated by the general partner unless: (1) the entity seeking indemnification is successful in defending such action on the merits and such indemnification is approved by a court of competent jurisdiction; (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or (3) a court of competent jurisdiction approves a settlement of the claims against the entity seeking indemnification involving securities law violations and finds that indemnification of the settlement and related costs should be made. Any person seeking indemnification must provide the court with the current position of the applicable state regulatory authority regarding indemnification for violations of securities law. Your partnership will not advance any funds to the general partners or their affiliates for legal expenses and other costs incurred as a result of any legal action initiated against such person by a limited partner. Your partnership may advance funds to the general partners or their affiliates for legal expenses and other costs incurred as a result of a legal action if: (1) the S-77 2585 legal action relates to the performance of duties or services by the general partners or their affiliates on behalf of your partnership for which they could be indemnified; (2) the legal action is initiated by a third party who is not a limited partner; and (3) the person receiving the advance undertakes to repay the advanced funds to your partnership if he is not entitled to indemnification. Your partnership will not pay for any insurance covering liability of the general partner for actions or omissions for which indemnification is not permitted under your partnership's agreement of limited partnership; provided, however, that nothing contained in your partnership's agreement of limited partnership will preclude your partnership from purchasing and paying for such types of insurance as would be customary for any person owning comparable assets and engaged in a similar business. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $47.47 January 1, 1996 - December 31, 1996......................... 25.98 January 1, 1997 - December 31, 1997......................... 24.57 January 1, 1998 - June 30, 1998............................. 11.91
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately an 11.65% interest in your partnership, including 2,482.83 units held by us and the interest held by Davidson Growth Plus GP Corporation, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $141,735 1995........................................................ 149,569 1996........................................................ 143,000 1997........................................................ 149,000 1998 (through June 30)...................................... 75,000
In addition, your partnership accrued management fees of $18,000 in 1996, $19,000 in 1997, and $10,000 for the first six months of 1998. S-78 2586 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $229,833 1995........................................................ 242,834 1996........................................................ 259,000 1997........................................................ 258,000 1998 (through June 30)...................................... 135,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time S-79 2587 parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Davidson Growth Plus, L.P. appearing in Davidson Growth Plus, L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 2588 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2589 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2590 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2591 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2592
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2593
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2594
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2595
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2596 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2597 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DAVIDSON INCOME REAL ESTATE, L.P. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $552.00 per unit and an affiliate estimated the net liquidation value of your units to be $535.29 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2598 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER........... S-1 SUMMARY......................................... S-7 The AIMCO Operating Partnership............... S-7 Affiliation with your General Partner......... S-7 The Offer..................................... S-7 Risk Factors.................................. S-7 Background and Reasons for the Offer.......... S-12 Terms of the Offer............................ S-14 Certain Federal Income Tax Matters............ S-16 Valuation of Units............................ S-16 Fairness of the Offer......................... S-17 Stanger Analysis.............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership....................... S-18 Comparison of Your Units and AIMCO OP Units... S-18 Conflicts of Interest......................... S-18 Your Partnership.............................. S-19 Source and Amount of Funds and Transactional Expenses.................................... S-19 Summary Financial Information of AIMCO Properties, L.P. ........................... S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P. ...... S-22 Summary Financial Information of Davidson Income Real Estate, L.P. ................... S-25 Comparative Per Unit Data..................... S-25 THE AIMCO OPERATING PARTNERSHIP................. S-26 RISK FACTORS.................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer................................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer.......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer.......................... S-28 BACKGROUND AND REASONS FOR THE OFFER............ S-29 Background of the Offer....................... S-29 Alternatives Considered....................... S-30 Expected Benefits of the Offer................ S-31 THE OFFER....................................... S-33 Terms of the Offer; Expiration Date........... S-33 Acceptance for Payment and Payment for Units....................................... S-33 Procedure for Tendering Units................. S-34 Withdrawal Rights............................. S-37 Extension of Tender Period; Termination; Amendment................................... S-37 Proration..................................... S-38 Fractional OP Units........................... S-38 Future Plans of the AIMCO Operating Partnership................................. S-38 Voting by the AIMCO Operating Partnership..... S-39 Dissenters' Rights............................ S-39 Conditions of the Offer....................... S-39 Effects of the Offer.......................... S-41 Certain Legal Matters......................... S-42 Fees and Expenses............................. S-44 Accounting Treatment.......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS.............. S-45 Tax Consequences of Exchanging Units Solely for OP Units................................ S-45 Tax Consequences of Exchanging Units for Cash and OP Units................................ S-45 Tax Consequences of Exchanging Units Solely for Cash.................................... S-46 Adjusted Tax Basis............................ S-46 Character of Gain or Loss Recognized Pursuant to the Offer................................ S-47 Passive Activity Losses....................... S-47 Foreign Offerees.............................. S-48 VALUATION OF UNITS.............................. S-48 FAIRNESS OF THE OFFER........................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness.................................... S-49 Fairness to Unitholders who Tender their Units....................................... S-50 Fairness to Unitholders who do not Tender their Units................................. S-51 Comparison of Consideration to Alternative Consideration............................... S-51 Allocation of Consideration................... S-54 STANGER ANALYSIS................................ S-55 Experience of Stanger......................... S-55 Summary of Materials Considered............... S-55 Summary of Reviews............................ S-56 Conclusions................................... S-57 Assumptions, Limitations and Qualifications... S-57 Compensation and Material Relationships....... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP......................... S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS..... S-65 DESCRIPTION OF PREFERRED OP UNITS............... S-69 General....................................... S-69 Ranking....................................... S-69 Distributions................................. S-69 Allocation.................................... S-70 Liquidation Preference........................ S-70 Redemption.................................... S-71 Voting Rights................................. S-71 Restrictions on Transfer...................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK.......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK............................... S-74 CONFLICTS OF INTEREST........................... S-77 Conflicts of Interest with Respect to the Offer....................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership............................ S-77 Competition Among Properties.................. S-77 Features Discouraging Potential Takeovers..... S-77 Future Exchange Offers........................ S-77
i 2599
PAGE ---- YOUR PARTNERSHIP................................ S-78 General....................................... S-78 Additional Information Concerning Your Partnership................................. S-78 Originally Anticipated Term of the Partnership................................. S-78 General Policy Regarding Sales and Refinancings of Partnership Properties...... S-79 Property Management........................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................. S-79 Distributions................................. S-80 Beneficial Ownership of Interests in Your Partnership................................. S-80 Compensation Paid to the General Partner and its Affiliates.............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES...................................... S-81 LEGAL MATTERS................................... S-82 EXPERTS......................................... S-82 OPINION OF ROBERT A. STANGER & CO., INC. ....... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. ............................... B-1
ii 2600 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Davidson Income Real Estate, L.P. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Davidson Diversified Properties, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2601 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2602 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $7.24 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2603 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $90.00 per unit to $660.00 per unit from January 1, 1997 to September 30, 1998. The general partner of your partnership has information that indicates this reported sale price was for two, isolated transactions for a minimal number of units and such sales price was materially higher than the range of sales price for all other transactions during these two years. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $552.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $535.29 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. S-4 2604 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2605 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2606 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2607 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $552.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $535.29 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $90.00 per unit to $660.00 per unit from January 1, 1997 to September 30, 1998. The general partner of your partnership has information that indicates this reported sale price was for two, isolated transactions for a minimal number of units and such sales price was materially higher than the range of sales price for all other transactions during these two years. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within S-8 2608 any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 2609 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 2610 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 2611 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 4.9% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such S-12 2612 assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. S-13 2613 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. S-14 2614 Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2615 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2616 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100.00 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $90.00 to $660.00(a) Estimated liquidation proceeds............................ $
- --------------- (a) The general partner of your partnership has information that indicates this reported sale price was for two, isolated transactions for a minimal number of units and such sales price was materially higher than the range of sales price for all other transactions during January 1, 1997 to September 30, 1998. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's S-17 2617 investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 2% of adjusted cash from operations (as defined in your partnership's agreement of limited partnership) after your partnership has made distributions to limited partners in any year equal to 10% of their invested capital, and an additional 5% of adjusted cash from operations after 15% of the limited partners' invested capital has been returned. The general partner also receives reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements for expenses of $61,000 for the first six months of 1998. The property manager received management fees of $114,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could S-18 2618 be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Davidson Income Real Estate, L.P. was organized on April 30, 1985, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following four residential apartment complexes: Northsprings Apartments, a 120-unit complex in Atlanta, Georgia; Lakeside Apartments, a 216-unit complex in Charlotte, North Carolina; Bexley House Apartments, a 64-unit complex in Columbus, Ohio; and Covington Pointe Apartments, a 180-unit complex in Dallas, Texas, and a 17.5% interest in a joint venture, which owns Brighton Crest Apartments, a 320-unit complex in Marietta, Georgia. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of August 1, 1998, there were 26,776 units of limited partnership interest issued and outstanding, which were held of record by 3,036 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2619 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2620
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2621 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2622
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2623 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2624 SUMMARY FINANCIAL INFORMATION OF DAVIDSON INCOME REAL ESTATE, L.P. The summary financial information of Davidson Income Real Estate, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Davidson Income Real Estate, L.P. for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. DAVIDSON INCOME REAL ESTATE, L.P.
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------- -------------------------- 1998 1997 1997 1996 1995 ------- --------- ------ ------ ------ (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $2,291 $2,332 $4,728 $4,709 $4,564 Net Income (Loss)........................................... 18 68 (77) 42 (216) Net Income (Loss) per limited partnership unit.............. 0.65 2.46 (2.80) 1.54 (7.84) Distributions per limited partnership unit.................. 7.24 6.35 13.56 17.40 21.75
JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $13,944 $14,355 $14,138 $14,658 $15,053 Total Assets................................................ 15,921 16,520 16,269 16,782 17,220 Notes Payable............................................... 11,957 12,062 12,011 12,112 11,932 Partners' Capital (Deficit)................................. 3,475 4,002 3,657 4,111 4,549
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING DAVIDSON INCOME REAL PARTNERSHIP ESTATE, L.P. ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $7.24 $13.56
S-25 2625 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $90.00 per unit to $660.00 per unit from January 1, 1997 to September 30, 1998. The general partner of your partnership has information that indicates this reported sale price was for two, isolated transactions for a minimal number of units and such sales price was materially higher than the range of sales price for all other transactions during these two years. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $552.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $535.29 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partner- S-26 2626 ship's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 2627 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $7.24 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 2628 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Residential Group, L.P., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 4.9% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 2629 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of 1998, the AIMCO Operating Partnership has made offers to many of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In August 1998, Cooper River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer at a cash purchase price of $375.00 per unit. Prior to such tender offer, Madison Partnership Liquidity Investors 64, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $200.00 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 2630 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 2631 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2632 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2633 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for units held by IRAs and Keogh Plans). No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 2634 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2635 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2636 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2637 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2638 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2639 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2640 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2641 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 361 units in your partnership have been transferred during the preceding twelve months (representing approximately 1.35% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2642 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2643 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2644 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2645 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2646 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2647 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Northsprings Apartments.................... $ % $ Lakeside Apartments........................ Bexley House Apartments (I & II)........... Covington Pointe Apartments................ Brighton Crest Apartments (joint venture).................................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2648 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2649 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $7.24 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 2650 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2651 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $90.00 to $660.00(a) Estimated liquidation proceeds............................ $
- --------------- (a) The general partner of your partnership has information that indicates this reported sale price was for two, isolated transactions for a minimal number of units and such sales price was materially higher than the range of sales price for all other transactions during January 1, 1997 to September 30, 1998. Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 917 units (representing less than 3.5% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. DAVIDSON INCOME REAL ESTATE, L.P. REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $ 90.00 $660.00 (d) (d) Second Quarter.................................. 195.00 500.00(c) $ 33.00 $343.00 First Quarter................................... 315.00 500.00(c) (e) (e) Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 235.00 500.00 319.00 326.00 Third Quarter................................... 301.33 331.50 305.00 325.00 Second Quarter.................................. 223.00 325.00 290.00 332.00 First Quarter................................... 210.00 307.00 250.00 312.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 150.69 296.00 310.00 310.00 Third Quarter................................... 50.00 286.00 201.00 237.00 Second Quarter.................................. 110.00 152.00 -- -- First Quarter................................... 85.77 155.00 -- --
S-52 2652 - --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) The general partner has information that indicates this reported sale price was for two, isolated transactions for a minimal number of units and such sales price was materially higher than the range of sales prices for all other transactions during both quarters. (d) Information not yet published. (e) No units were reported by the Partnership Spectrum as having been sold during this quarter. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-53 2653 In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Lakeside Apartments was appraised in March 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $7,300,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $552.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $465.00. This net asset value estimate was based on a hypothetical sale of all of your partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-54 2654 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-55 2655 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-56 2656 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-57 2657 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 2658 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2010. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to invest in, hold and The purpose of the AIMCO Operating Partnership is to manage existing income-producing residential real conduct any business that may be lawfully conducted by estate. Subject to restrictions contained in your a limited partnership organized pursuant to the partnership's agreement of partnership, your Delaware Revised Uniform Limited Partnership Act (as partnership may perform all acts necessary, advisable amended from time to time, or any successor to such or convenient to the business of your partnership, statute) (the "Delaware Limited Partnership Act"), including borrowing money and creating liens. 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.
S-59 2659 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 30,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, currently, the No action or consent by the OP Unitholders is required general partner is prohibited from admitting any in connection with the admission of any additional OP additional limited partners. The general partner of Unitholder. See "Description of OP Units -- Management your partnership may not issue units in exchange for by the AIMCO GP" in the accompanying Prospectus. property. 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, partici- pating, 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 Under your partnership's agreement of partnership, your The AIMCO Operating Partnership may lend or contribute partnership may not sell or lease any partnership funds or other assets to its subsidiaries or other property to any entity in which a general partner or persons in which it has an equity investment, and such affiliate of a general partner has an interest or persons may borrow funds from the AIMCO Operating purchase or lease any property to your partnership, Partnership, on terms and conditions established in the except under certain circumstances. Neither the general sole and absolute discretion of the general partner. To partner nor its affiliates has the authority to grant the extent consistent with the business purpose of the to themselves or an affiliate an exclusive listing for AIMCO Operating Partnership and the permitted the sale of partnership assets. The general partner of activities of the general partner, the AIMCO Operating your partnership may not cause your partnership to Partnership may transfer assets to joint ventures, enter into any agreements with a general partner or its limited liability companies, partnerships, affiliates which are not subject to termination without corporations, business trusts or other business penalty by either party upon not more than 60 days entities in which it is or thereby becomes a written notice. The general partner may not cause your participant upon such terms and subject to such partnership to lend money to the general partner or its conditions consistent with the AIMCO Operating Part- affiliates. The general partner of your partnership may nership Agreement and applicable law as the general purchase property in its own name or in the name of a partner, in its sole and absolute discretion, believes nominee and temporarily hold title thereto for the to be advisable. Except as expressly permitted by the purpose of facilitating the acquisition or financing of AIMCO Operating Partnership Agreement, neither the such property by your partnership if (1) the property general partner nor any of its affiliates may sell, is purchased by your partnership at a purchase price no transfer or convey any property to the AIMCO Operating greater than the price paid by the general partner plus Partnership, directly or indirectly, except pursuant to closing costs, (2) there is no difference in the transactions that are determined by the general partner interest rates on the loans secured by the property at in good faith to be fair and reasonable. the time it is acquired by the general partner and the time it is acquired by your partnership, (3) neither the general partner nor its affiliates received any economic advantage by reason of having held title to the property, and (4) at your partnership's expense, your partnership receives an opinion from its counsel that your partnership will be treated as the owner of the property for federal income tax purposes. Affiliates of the general partner are entitled to a property management fee equal to 5% of the annual gross revenue from the partnership properties for providing professional property management services for such properties. Neither the general partner nor its affiliates may enter into any contract with your partnership which would bind your partnership after the removal, bankruptcy or insolvency of a general partner, or continue the business with partnership assets after the occurrence of such an event.
S-60 2660 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage or restrictions on borrowings, and the general partner has other lien on any of your partnership's investments. full power and authority to borrow money on behalf of The general partner may cause your partnership to the AIMCO Operating Partnership. The AIMCO Operating prepay, consolidate, refinance or otherwise modify any Partnership has credit agreements that restrict, among of your partnership's debt on such terms and in such other things, its ability to incur indebtedness. See amounts as the general partner deems to be in the best "Risk Factors -- Risks of Significant Indebtedness" in interests of your partnership. The general partner is the accompanying Prospectus. authorized to allow your partnership to borrow money from certain lenders on a short-term basis. The general partner is authorized to sell certain properties owned by your partnership at a price equal to the amount your partnership paid for each property plus expenses incurred by your partnership in connection with the acquisition of each property in order to repay such short-term loans. The general partner may not pledge or mortgage an aggregate amount equal to 75% of the purchase price of your partnership's properties at any one time, except to refinance existing obligations. The general partner may not cause your partnership to finance the purchase of a property with an all-inclusive or "wraparound" note and mortgage unless certain conditions are met. Your partnership may not incur mortgage financing which amortizes over more than a thirty-year period or which requires a balloon payment prior to the earlier of (1) ten years from the date your partnership acquires a property or (2) two years subsequent to the anticipated holding period of the property, but no sooner than seven years from the date your partnership acquired the property, except with respect to financing representing, in the aggregate, 25% or less than the total purchase price of the properties acquired or any financing from an alternative financing source with a commitment to allow refinancing to extend the maturity of any such balloon payment.
Review of Investor Lists Your partnership's agreement of partnership entitles a Each OP Unitholder has the right, upon written demand limited partner to inspect your partnership's books and with a statement of the purpose of such demand and at records, your partnership agreement, any separate such OP Unitholder's own expense, to obtain a current certificates of limited partnership and copies of each list of the name and last known business, residence or appraisal of partnership property. Your partnership is mailing address of the general partner and each other not required to furnish any limited partner with a copy OP Unitholder. of the certificate or certificates of limited partnership containing the most recent listing of partners' names and addresses and capital contributions except upon written request. Your partnership may charge a reasonable charge for copying.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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
S-61 2661 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Your partnership limits the liability of the general Notwithstanding anything to the contrary set forth in partner and its affiliates to your partnership or the the AIMCO Operating Partnership Agreement, the general limited partners for acts undertaken on behalf of your partner is not liable to the AIMCO Operating partnership only to the extent that they are Partnership for losses sustained, liabilities incurred indemnified by your partnership for actions taken where or benefits not derived as a result of errors in the general partner determined, in good faith, that the judgment or mistakes of fact or law of any act or course of conduct which caused the loss or liability omission if the general partner acted in good faith. was in or not opposed to the best interests of your The AIMCO Operating Partnership Agreement provides for partnership, provided that such loss, damage, indemnification of AIMCO, or any director or officer of liability, cost or expense was not the result of AIMCO (in its capacity as the previous general partner negligence or misconduct by such party. The general of the AIMCO Operating Partnership), the general partner and its affiliates are entitled to partner, any officer or director of general partner or indemnification by your partnership against any the AIMCO Operating Partnership and such other persons liability, loss or damage incurred by them in as the general partner may designate from and against connection with the business of your partnership if the all losses, claims, damages, liabilities, joint or general partner determined, in good faith, that the several, expenses (including legal fees), fines, course of conduct which caused the loss or liability settlements and other amounts incurred in connection was in or not opposed to the best interests of your with any actions relating to the operations of the partnership, provided that such loss, damage, AIMCO Operating Partnership, as set forth in the AIMCO liability, cost or expense was not the result of Operating Partnership Agreement. The Delaware Limited negligence or misconduct by such party. Such indemnity Partnership Act provides that subject to the standards will be paid only from the assets of your partnership and restrictions, if any, set forth in its partnership and not from the assets of the limited partners. agreement, a limited partnership may, and shall have Notwithstanding any other provision to the contrary, the power to, indemnify and hold harmless any partner the general partner and its affiliates will be liable or other person from and against any and all claims and and will not be entitled to indemnity for any loss, demands whatsoever. It is the position of the damage or cost resulting from violations of federal or Securities and Exchange Commission that indemnification state securities laws in connection with the units of directors and officers for liabilities arising under unless there is a successful adjudication of the merits the Securities Act is against public policy and is of each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning more affairs of the AIMCO Operating Partnership. The general than 50% of the outstanding units. A substitute general partner may not be removed as general partner of the partner may be admitted with the consent of the general AIMCO Operating Partnership by the OP Unitholders with partner and of the limited partners owning more than or without cause. Under the AIMCO Operating Partnership 50% of the outstanding units. The general partner may Agreement, the general partner may, in its sole admit additional general partners with the consent of a discretion, prevent a transferee of an OP Unit from majority in interest of the limited partners. A limited becoming a substituted limited partner pursuant to the partner may substitute a transferee of his units in AIMCO Operating Partnership Agreement. The general such limited partner's place without the consent of the partner may exercise this right of approval to deter, general partner. delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner-
S-62 2662 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of partnership may be With the exception of certain circumstances set forth amended by the general partner without the consent of in the AIMCO Operating Partnership Agreement, whereby the limited partners if such amendment: (1) adds to the the general partner may, without the consent of the OP representation, duties or obligations of the general Unitholders, amend the AIMCO Operating Partnership partner or its affiliates or surrenders any right or Agreement, amendments to the AIMCO Operating power granted to the general partner or its affiliates Partnership Agreement require the consent of the for the benefit of the limited partners, (2) cures any holders of a majority of the outstanding Common OP ambiguity, corrects or supplements any provisions that Units, excluding AIMCO and certain other limited may be inconsistent with any other provision or makes exclusions (a "Majority in Interest"). Amendments to any other provision with respect to matters or the AIMCO Operating Partnership Agreement may be questions arising under your partnership's agreement of proposed by the general partner or by holders of a limited partnership consistent with the provisions of Majority in Interest. Following such proposal, the your partnership's agreement of limited partnership, general partner will submit any proposed amendment to (3) deletes or adds any provision required by any the OP Unitholders. The general partner will seek the applicable government agency, (4) lessens the written consent of the OP Unitholders on the proposed possibility, in the general partner's opinion, that amendment or will call a meeting to vote thereon. See your limited partnership units may be considered "plan "Description of OP Units -- Amendment of the AIMCO assets" under the Employee Retirement Income Security Operating Partnership Agreement" in the accompanying Act of 1971, as amended, (5) maintains the status of Prospectus. your partnership as an entity which is not taxable as a corporation for Federal income tax purposes, (6) reflects the addition or substitution of limited partners or any reduction of the partners' capital accounts and (7) adjusts certain provisions of your partnership's partnership agreement regarding partnership net income and net loss if such adjustments maintain your partnership's tax allocations as the result of any amendment to the federal income tax laws or any new interpretation of the federal income tax laws, provided that the general partner must receive an opinion from your partnership's counsel that such an adjustment to the net income and net loss provisions will not materially adversely affect the limited partners' interests in your partnership. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership is entitled to The general partner does not receive compensation for receive a fee equal to 2% of Adjusted Cash From its services as general partner of the AIMCO Operating Operations (as defined your partnership's agreement of Partnership. However, the general partner is entitled limited partnership) after your partnership has made to payments, allocations and distributions in its distributions to limited partners in any year equal to capacity as general partner of the AIMCO Operating 10% of their invested capital, and an additional 5% of Partnership. In addition, the AIMCO Operating Part- Adjusted Cash From Operations after 15% of the limited nership is responsible for all expenses incurred partners' invested capital has been distributed in such relating to the AIMCO Operating Partnership's ownership year as compensation for its services as general of its assets and the operation of the AIMCO Operating partner and may also receive reimbursement for expenses Partnership and reimburses the general partner for such generated in such capacity. expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
S-63 2663 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of partnership, a Except for fraud, willful misconduct or gross limited partner is not liable for any of the expenses, negligence, no OP Unitholder has personal liability for liabilities or obligations of your partnership. No the AIMCO Operating Partnership's debts and limited partner is required to lend funds to your obligations, and liability of the OP Unitholders for partnership, or to make any further capital contribu- the AIMCO Operating Partnership's debts and obligations tion after its initial capital contribution is fully is generally limited to the amount of their invest- paid. Under applicable law, a limited partner may be ment in the AIMCO Operating Partnership. However, the liable to your partnership to the extent of previous limitations on the liability of limited partners for distributions made to him if your partnership does not the obligations of a limited partnership have not been have sufficient assets to discharge its liabilities. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner of your partnership may not possess Unless otherwise provided for in the relevant your partnership's property or assign rights in partnership agreement, Delaware law generally requires specific properties of your partnership for other than a general partner of a Delaware limited partnership to a partnership purpose. The general partner of your adhere to fiduciary duty standards under which it owes partnership has the fiduciary responsibility for the its limited partners the highest duties of good faith, safekeeping and use of all funds and assets of your fairness and loyalty and which generally prohibit such partnership, whether or not such funds and assets are general partner from taking any action or engaging in in the general partner's possession or control. The any transaction as to which it has a conflict of general partner may not employ or permit others to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership nor commingle funds of on behalf of the AIMCO Operating Partnership, a right your partnership with any other account. The general of first opportunity arrangement and other conflict partner may not commingle funds of your partnership avoidance agreements with various affiliates of the with any other person or entity. The general partner, AIMCO Operating Partnership and the general partner, on any of its affiliates and any limited partners of your such terms as the general partner, in its sole and partnership may engage in or possess an interest in any absolute discretion, believes are advisable. The AIMCO other business or venture of any nature and Operating Partnership Agreement expressly limits the description, independently or with others, including, liability of the general partner by providing that the but not limited to, the ownership, financing, leasing, general partner, and its officers and directors will operation, management, brokerage and development of not be liable or accountable in damages to the AIMCO real property. Neither the general partner nor its Operating Partnership, the limited partners or affiliates are required to present to your partnership assignees for errors in judgment or mistakes of fact or any particular investment opportunity, regardless of law or of any act or omission if the general partner or whether your partnership could take advantage of such such director or officer acted in good faith. See an opportunity. The general partner and its affiliates "Description of OP Units -- Fiduciary Responsibilities" have the right to take such an opportunity for its own in the accompanying Prospectus. account or recommend such an opportunity to others.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 consid-
S-64 2664 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ered a "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of partnership, upon the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning a Operating Partnership Agreement, have voting rights only with majority of the outstanding units, the holders of the Preferred OP respect to certain limited matters the limited partners may, subject Units will have the same voting such as certain amendments and to certain exceptions, amend your rights as holders of the Common OP termination of the AIMCO Operating partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain partnership, terminate your Units" in the accompanying transactions such as the partnership, remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale or encumbrance ing, in addition to any other vote benefit of creditors and certain of all or substantially all of the or consent of partners required by transfers by the general partner of assets of your law or by the its
S-65 2665 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership, extend the term of AIMCO Operating Partnership Agree- interest in the AIMCO Operating your partnership, approve or ment, the affirmative vote or Partnership or the admission of a disapprove the voluntary transfer consent of holders of at least 50% successor general partner. of the general partner interest and of the outstanding Preferred OP change the investment objectives Units will be necessary for Under the AIMCO Operating Partner- and policies of your partnership. effecting any amendment of any of ship Agreement, the general partner the provisions of the Partnership has the power to effect the A general partner may cause the Unit Designation of the Preferred acquisition, sale, transfer, dissolution of your partnership by OP Units that materially and exchange or other disposition of retiring. Your partnership may be adversely affects the rights or any assets of the AIMCO Operating continued by the remaining general preferences of the holders of the Partnership (including, but not partner within 60 days after the Preferred OP Units. The creation or limited to, the exercise or grant retirement of a general partner, issuance of any class or series of of any conversion, option, or, if none, the limited partners partnership units, including, privilege or subscription right or may agree to continue your without limitation, any partner- any other right available in partnership by electing a successor ship units that may have rights connection with any assets at any general partner upon the vote of senior or superior to the Preferred time held by the AIMCO Operating holders of more than 50% of the OP Units, shall not be deemed to Partnership) or the merger, units within 90 days after the materially adversely affect the consolidation, reorganization or retirement of the general partner. rights or preferences of the other combination of the AIMCO holders of Preferred OP Units. With Operating Partnership with or into respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of distributable cash $ per Preferred OP Unit; tribute quarterly all, or such from operations are to be made provided, however, that at any time portion as the general partner may quarterly within 45 days after the and from time to time on or after in its sole and absolute discretion close of a quarter. The the fifth anniversary of the issue determine, of Available Cash (as distributions payable to the date of the Preferred OP Units, the defined in the AIMCO Operating partners are not fixed in amount AIMCO Operating Partnership may Partnership Agreement) generated by and depend upon the operating adjust the annual distribution rate the AIMCO Operating Partnership results and net sales or on the Preferred OP Units to the during such quarter to the general refinancing proceeds available from lower of (i) % plus the annual partner, the special limited the disposition of your interest rate then applicable to partner and the holders of Common partnership's assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which interests in the AIMCO Operating Partnership on such
S-66 2666 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ranks on a parity with its Class H record date. Holders of any other Cumulative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer five There is no public market for the There is no public market for the or more units (unless applicable Preferred OP Units and the OP Units. The AIMCO Operating Part- laws require fewer units to be Preferred OP Units are not listed nership Agreement restricts the transferred) to any person by a on any securities exchange. The transferability of the OP Units. written assignment, duly executed Preferred OP Units are subject to Until the expiration of one year by the assignor of the units, the restrictions on transfer as set from the date on which an OP terms of which are not contrary to forth in the AIMCO Operating Unitholder acquired OP Units, any terms of your partnership Partnership Agreement. subject to certain exceptions, such agreement. The limited partner OP Unitholder may not transfer all wishing to transfer his units must Pursuant to the AIMCO Operating or any portion of its OP Units to notify the general partner within Partnership Agreement, until the any transferee without the consent 30 days after assignment. A limited expiration of one year from the of the general partner, which partner may not transfer any units date on which a holder of Preferred consent may be withheld in its sole if the units sought to be assigned, OP Units acquired Preferred OP and absolute discretion. After the when combined with other units Units, subject to certain expiration of one year, such OP assigned within the preceding 12 exceptions, such holder of Unitholder has the right to months, would result in the sale or Preferred OP Units may not transfer transfer all or any portion of its exchange of 50% or more of the all or any portion of its Pre- OP Units to any person, subject to units of your partnership. Such a ferred OP Units to any transferee the satisfaction of certain transfer is only allowed if, at the without the consent of the general conditions specified in the AIMCO expense of the limited partner partner, which consent may be Operating Partnership Agreement, wishing to assign his units, your withheld in its sole and absolute including the general partner's partnership obtains an opinion of discretion. After the expiration of right of first refusal. See counsel to your partnership that one year, such holders of Preferred "Description of OP Units -- such a transfer does not result in OP Units has the right to transfer Transfers and Withdrawals" in the termination of your partnership for all or any portion of its Preferred accompanying Prospectus. Federal tax purposes. OP Units to
S-67 2667 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Such transferee may be substituted any person, subject to the After the first anniversary of as a limited partner if, in satisfaction of certain conditions becoming a holder of Common OP addition to the above requirements: specified in the AIMCO Operating Units, an OP Unitholder has the (1) a written assignment is duly Partnership Agreement, including right, subject to the terms and executed and acknowledged by the the general partner's right of conditions of the AIMCO Operating assignor and assignee specifying first refusal. Partnership Agreement, to require the number of units being assigned the AIMCO Operating Partnership to and the intention of the assignor After a one-year holding period, a redeem all or a portion of the that the assignee be substituted as holder may redeem Preferred OP Common OP Units held by such party a limited partner, (2) the assignor Units and receive in exchange in exchange for a cash amount based or the assignee pays a transfer therefor, at the AIMCO Operating on the value of shares of Class A fee, and (3) the assignor and Partnership's option, (i) subject Common Stock. See "Description of assignee have complied with such to the terms of any Senior Units, OP Units -- Redemption Rights" in other conditions as set forth in cash in an amount equal to the the accompanying Prospectus. Upon your partnership's agreement of Liquidation Preference of the receipt of a notice of redemption, limited partnership. Preferred OP Units tendered for the AIMCO Operating Partnership redemption, (ii) a number of shares may, in its sole and absolute of Class I Cumulative Preferred discretion but subject to the Stock of AIMCO that pay an restrictions on the ownership of aggregate amount of dividends yield Class A Common Stock imposed under equivalent to the distributions on AIMCO's charter and the transfer the Preferred OP Units tendered for restrictions and other limitations redemption and are part of a class thereof, elect to cause AIMCO to or series of preferred stock that acquire some or all of the tendered is then listed on the New York Common OP Units in exchange for Stock Exchange or another national Class A Common Stock, based on an securities exchange, or (iii) a exchange ratio of one share of number of shares of Class A Common Class A Common Stock for each Com- Stock of AIMCO that is equal in mon OP Unit, subject to adjustment Value to the Liquidation Preference as provided in the AIMCO Operating of the Preferred OP Units tendered Partnership Agreement. for redemption. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 2668 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 2669 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 2670 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 2671 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 2672 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 2673 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 2674 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 2675 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 2676 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 2% of adjusted cash from operations (as defined in your partnership's agreement of limited partnership) after your partnership has made distributions to limited partners in any year equal to 10% of their invested capital, and an additional 5% of adjusted cash from operations after 15% of the limited partners' invested capital has been returned. The general partner also may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $153,000 in 1996, $124,000 in 1997, and $61,000 for the first six months of 1998. The property manager received management fees of $233,000 in 1996, $233,000 in 1997 and $114,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans S-77 2677 may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. YOUR PARTNERSHIP GENERAL Davidson Income Real Estate, L.P. was organized on April 30, 1985 , under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following four residential apartment complexes: Northsprings Apartments, a 120-unit complex in Atlanta, Georgia; Lakeside Apartments, a 216-unit complex in Charlotte, North Carolina; Bexley House Apartments, a 64-unit complex in Columbus, Ohio; and Covington Pointe Apartments, a 180-unit complex in Dallas, Texas, and a 17.5% interest in a joint venture, which owns Brighton Crest Apartments, a 320-unit complex in Marietta, Georgia. The general partner of your partnership is Davidson Diversified Properties, Inc., which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of August 1, 1998, there were 26,776 units issued and outstanding, which were held of record by 3,036 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated July 26, 1985, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell and/or refinance its properties three to seven years after their acquisition . In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2010, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a S-78 2678 variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership limits the liability of the general partner and its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership only to the extent that they are indemnified by your partnership for actions taken where the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any liability, loss or damage incurred by them in connection with the business of your partnership if the general partner determined, in good faith, that the course of conduct which caused the loss or liability was in or not opposed to the best interests of your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. Such indemnity will be paid only from the assets of your partnership and not from the assets of the limited partners. Notwithstanding any other provision to the contrary, the general partner and its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance that insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. S-79 2679 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $ .
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $21.77 January 1, 1996 - December 31, 1996......................... 17.40 January 1, 1997 - December 31, 1997......................... 13.56 January 1, 1998 - June 30, 1998............................. 7.24
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 4.9% interest in your partnership, including 563 units held by us and the interest held by Davidson Diversified Properties, Inc., as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $159,234 1995........................................................ 185,047 1996........................................................ 153,000 1997........................................................ 124,000 1998 (through June 30)...................................... 61,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $210,096 1995........................................................ 221,930 1996........................................................ 233,000 1997........................................................ 233,000 1998 (through June 30)...................................... 114,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 2680 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT Merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 2681 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Davidson Income Real Estate, L.P. appearing in Davidson Income Real Estate, L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 2682 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2683 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2684 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2685 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2686
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2687
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2688
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2689
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2690 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2691 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in one office/warehouse and one apartment complex to holding an interest in our large portfolio of properties. In the future, the two properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2692 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Drexel Burnham Lambert Real Estate Associates II......................................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-52 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-54 Assumptions, Limitations and Qualifications............................. S-54 Compensation and Material Relationships...... S-55 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-56 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-62 DESCRIPTION OF PREFERRED OP UNITS.............. S-66 General...................................... S-66 Ranking...................................... S-66 Distributions................................ S-66 Allocation................................... S-67 Liquidation Preference....................... S-67 Redemption................................... S-68 Voting Rights................................ S-68 Restrictions on Transfer..................... S-68 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-69 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-71 CONFLICTS OF INTEREST.......................... S-74 Conflicts of Interest with Respect to the Offer...................................... S-74 Conflicts of Interest that Currently Exist for Your Partnership....................... S-74 Competition Among Properties................. S-74 Features Discouraging Potential Takeovers.... S-74 Future Exchange Offers....................... S-74 YOUR PARTNERSHIP............................... S-75 General...................................... S-75
i 2693
PAGE ---- Additional Information Concerning Your Partnership................................ S-75 Term of the Partnership...................... S-75 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-75 Property Management.......................... S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions................................ S-76 Beneficial Ownership of Interests in Your Partnership................................ S-76 Compensation Paid to the General Partner and its Affiliates............................. S-77
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2694 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Drexel Burnham Lambert Real Estate Associates II. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2695 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2696 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $3.81 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2697 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20 per unit to $138 per unit from January 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2698 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 10 units and if after we purchase any of your units you must retain at least 10 units if any units are retained. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2699 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2700 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2701 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20 per unit to $138 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 2702 and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 2703 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 2704 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 2705 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 1% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 2706 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 2707 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 2708 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 2709 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 2710 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $20 to $138 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 2711 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive any annual management fees but may receive reimbursement for expenses incurred in such capacity. The property manager received management fees of $48,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Drexel Burnham Lambert Real Estate Associates, L.P. was organized in 1983, under the laws of the State of New York. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following: a 203 unit residential apartment complex in North Miami Beach, Florida and an 80,410 sq. ft. office and warehouse in Greensboro, North Carolina. Your partnership also owns a 50% Joint Venture interest in the Table Mesa Shopping Center, an 181,636 square feet shopping center located in Boulder, Colorado. The general partner of your partnership is DBL Properties Corporation, which is a majority-owned subsidiary of AIMCO. The property manager is a majority-owned subsidiary of AIMCO and serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 37,273 units of limited partnership interest issued and outstanding, which were held of record by 1,701 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional S-18 2712 information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2713 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2714
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2715 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2716
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2717 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2718 SUMMARY FINANCIAL INFORMATION OF DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II The summary financial information of Drexel Burnham Lambert Real Estate Associates II for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Drexel Burnham Lambert Real Estate Associates II for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------- ------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $1,021 $1,749 $2,673 $1,779 $ 1,622 Net Income (Loss)........................................... 99 787 724 (89) (289) Net Income (Loss) per limited partnership unit.............. 2.63 18.22 16.55 (2.36) (7.68) Distributions per limited partnership unit.................. 3.81 7.59 0.11 7.59 7.50
JUNE 30, DECEMBER 31, --------------- ------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $4,071 $4,387 $4,214 $4,570 $ 9,256 Total Assets................................................ 5,701 5,994 5,755 6,264 10,647 Notes Payable............................................... 4,506 4,651 4,580 4,720 8,513 Partners' Capital (Deficit)................................. 916 1,023 959 239 611
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING DREXEL BURNHAM LAMBERT PARTNERSHIP REAL ESTATE ASSOCIATES II ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $3.81 $0.11
S-25 2719 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $20 per unit to $138 per unit from January 1, 1997 to September 30, 1998. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to S-26 2720 remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. S-27 2721 UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $3.81 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 2722 RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity, that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 16.825% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 2723 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 2724 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 2725 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 2726 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 2727 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 2728 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 2729 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 2730 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 2731 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 2732 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 2733 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 2734 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately % of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 2735 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (but not your general partner) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 2736 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 2737 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 2738 received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax S-45 2739 basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 2740 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION CAPITAL GROSS PROPERTY PROPERTY OPERATING INCOME RATE EXPENDITURES VALUE - ----------------------------- ---------------- -------------- ------------ -------------- Windover Bullvell Park (Phase II) $ % $ $ Presidential House Apartments
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 2741 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 2742 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $3.81 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 2743 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 2744 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $20 to $138 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 3,094 units (representing approximately 8.3% of the total outstanding units) has transferred in sales transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods presented, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ----------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $20.00 $ 60.00 Second Quarter............................................ 60.00 138.00 First Quarter............................................. 50.00 60.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 40.25 86.68 Third Quarter............................................. 40.00 91.25 Second Quarter............................................ 40.00 120.00 First Quarter............................................. 23.20 42.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 34.00 60.22 Third Quarter............................................. 35.00 58.00 Second Quarter............................................ 40.00 61.00 First Quarter............................................. Not Available Not Available
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this S-51 2745 information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. S-52 2746 We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. S-53 2747 SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure S-54 2748 and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-55 2749 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under New York law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Distributions from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2032. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership was formed to invest in, acquire, The purpose of the AIMCO Operating Partnership is to improve, hold, maintain, manage, operate, lease, sell, conduct any business that may be lawfully conducted by dispose of and otherwise deal with real estate, real a limited partnership organized pursuant to the estate improvements or interests in real estate and Delaware Revised Uniform Limited Partnership Act (as real estate improvements, and to engage in any and all amended from time to time, or any successor to such activities related or incidental thereto. Your statute) (the "Delaware Limited Partnership Act"), partnership's primary objective is to invest mainly in provided that such business is to be conducted in a income-producing commercial and residential real manner that permits AIMCO to be qualified as a REIT, estate. 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.
S-56 2750 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 46,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not make loans to the funds or other assets to its subsidiaries or other general partner or its affiliates or, subject to persons in which it has an equity investment, and such certain exceptions, purchase or lease any real property persons may borrow funds from the AIMCO Operating from, sell or lease or any real property to the general Partnership, on terms and conditions established in the partner or its affiliates or any partnership in which sole and absolute discretion of the general partner. To the general or its affiliates has an interest, nor the extent consistent with the business purpose of the enter into any such transactions with respect to real AIMCO Operating Partnership and the permitted property in which the general partner or its affiliates activities of the general partner, the AIMCO Operating has an interest; provided, however, that your Partnership may transfer assets to joint ventures, partnership may enter into a joint venture with the limited liability companies, partnerships, general partner or an affiliate so long as such joint corporations, business trusts or other business venture does not have or acquire an interest in real entities in which it is or thereby becomes a property in which either the general partner or any of participant upon such terms and subject to such its affiliates have any interest other than an interest conditions consistent with the AIMCO Operating Part- in such joint venture. Subject to certain restrictions, nership Agreement and applicable law as the general a wrap-around or all-inclusive note and deed of trust partner, in its sole and absolute discretion, believes may be used to finance your partnership's acquisition to be advisable. Except as expressly permitted by the of a property. In addition, the general or its AIMCO Operating Partnership Agreement, neither the affiliates may not receive interest or other financing general partner nor any of its affiliates may sell, charges or fees for any loan to your partnership in transfer or convey any property to the AIMCO Operating excess of the lesser of: (1) amounts which would be Partnership, directly or indirectly, except pursuant to charged by unrelated lending institutions on comparable transactions that are determined by the general partner loans for the same purpose in the same locality or (2) in good faith to be fair and reasonable. 2% over the prime rate of Citibank N.A. No prepayment charge or penalty is permitted on any loan made to your partnership by the general partner or its affiliates. No property of your partnership may secure any loan made to your partnership by the general partner or its affiliate if at the commencement of the loan any payment of principal or interest is to be made more than 2 years after the date of the loan. The general partner and any of its affiliates may not provide permanent financing to your partnership. Each agreement, contract or arrangement between your partnership and the general partner (other than your partnership's agreement of limited partnership) or an affiliate of the general partner must be terminable by either party, without penalty, on not more than sixty days' prior written notice.
S-57 2751 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and as security, to mortgage or restrictions on borrowings, and the general partner has otherwise place liens upon all or part of any property full power and authority to borrow money on behalf of of your partnership. The aggregate amount that may be the AIMCO Operating Partnership. The AIMCO Operating incurred by your partnership in connection with your Partnership has credit agreements that restrict, among partnership's acquisition of any property plus the other things, its ability to incur indebtedness. See aggregate amount of all other mortgage debt on your "Risk Factors -- Risks of Significant Indebtedness" in partnership's properties at the time of such the accompanying Prospectus. acquisition will not exceed 75% of the purchase price of all properties owned by your partnership. The total of the mortgage indebtedness which may be incurred by your partnership for the acquisition of any single property plus the amount of other mortgage debt on such property will not exceed 85% of the purchase price of such property. The total of the amount refinanced for any of your partnership's properties plus the aggregate amount of all other mortgage debt on your partner- ship's properties will not exceed 75% of the aggregate value of all of your partnership's properties as of the date of such refinancing. In connection with the purchase of any property by your partnership, the general partner will not obtain first mortgage financing, including any all-inclusive or wrap-around note and deed of trust, containing a balloon payment which does not contain the following provisions, unless prior approval from the California Department of Corporations is obtained: (1) such balloon payment will not be due and payable prior to the later of ten years from the commencement date of the loan, or three years from the acquisition date of the property by our partnership, and (2) such loan will provide for regular payments in an amount which would be sufficient to self-liquidate the loan over a twenty to thirty-year period. Secondary financing incurred in connection with the purchase, if any, must be fully amortizing or if not fully amortizing must not be due and payable during the expected holding period of the property. No creditor, as a result of making any loan to your partnership, may acquire any interest in the profits, capital or property of your partnership other than as a secured creditor of your partnership.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, the limited partners and their designated with a statement of the purpose of such demand and at representatives have the right to make copies of or, such OP Unitholder's own expense, to obtain a current upon written request and after payment of the list of the name and last known business, residence or reasonable expense of duplication, a limited partner mailing address of the general partner and each other will be provided with a copy of the certificate or OP Unitholder. certificates of limited partnership containing the most current listing of partners' names, addresses and capital contributions.
Management Control Under your partnership's agreement of limited All management powers over the business and affairs of partnership, the general partner has exclusive the AIMCO Operating Partnership are vested in AIMCO-GP, authority to manage the operations and affairs of your Inc., which is the general partner. No OP Unitholder partnership and to make all decisions regarding the has any right to participate in or exercise control or business of your partnership. The general partner has management power over the business and affairs of the all of the rights and powers of a general partner under AIMCO Operating Partnership. The OP Unitholders have New York partnership law and as otherwise provided by the right to vote on certain matters described under law, and any action taken by the general partner "Comparison of Ownership of Your Units and AIMCO OP constitutes the act of and bind your partnership. No Units -- Voting Rights" below. The general partner may limited partner may take part in the management of the not be removed by the OP Unitholders with or without business of your partnership, transact any business for cause. your partnership or have the power to sign for or to bind your partnership to any agreement, or document, In addition to the powers granted a general partner of said powers being vested solely and exclusively in the a limited partnership under applicable law or that are general partner. granted to the general
S-58 2752 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, neither the general partner nor its the AIMCO Operating Partnership Agreement, the general affiliates are liable to your partnership or the partner is not liable to the AIMCO Operating limited partners for any loss or damage incurred for Partnership for losses sustained, liabilities incurred any act performed or omitted in good faith in or benefits not derived as a result of errors in connection with the activities of your partnership or judgment or mistakes of fact or law of any act or in dealing with third parties on behalf of your omission if the general partner acted in good faith. partnership, if such act or omission does not The AIMCO Operating Partnership Agreement provides for constitute fraud, negligence, misconduct or breach of indemnification of AIMCO, or any director or officer of fiduciary duty. In addition, your partnership will AIMCO (in its capacity as the previous general partner indemnify, save harmless and pay all judgments and of the AIMCO Operating Partnership), the general claims against the general partner and its affiliates partner, any officer or director of general partner or for any liability, loss or damage incurred by them or the AIMCO Operating Partnership and such other persons by your partnership for any act performed or omitted to as the general partner may designate from and against be performed by them in good faith in connection with all losses, claims, damages, liabilities, joint or the activities of your partnership or in dealing with several, expenses (including legal fees), fines, third parties on behalf of your partnership, including settlements and other amounts incurred in connection costs and attorneys' fees (which attorneys' fees may be with any actions relating to the operations of the paid as incurred) and any amounts expended in the AIMCO Operating Partnership, as set forth in the AIMCO settlement of any claims of liability, loss or damage Operating Partnership Agreement. The Delaware Limited provided that such act or omission of the general Partnership Act provides that subject to the standards partner does not constitute fraud, negligence, and restrictions, if any, set forth in its partnership misconduct or breach of fiduciary duty by the general agreement, a limited partnership may, and shall have partner and provided further that any such indemnifi- the power to, indemnify and hold harmless any partner cation will be recoverable only from the assets of your or other person from and against any and all claims and partnership and not from the assets of unitholders. All demands whatsoever. It is the position of the judgments against your partnership and the general Securities and Exchange Commission that indemnification partner, wherein the general partner is entitled to of directors and officers for liabilities arising under indemnification, must first be satisfied from your the Securities Act is against public policy and is partnership's assets before the general partner will be unenforceable pursuant to Section 14 of the Securities responsible for such obligations. Act of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and appoint a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning more than 50% of partner may not be removed as general partner of the the outstanding units. A general partner may AIMCO Operating Partnership by the OP Unitholders with voluntarily withdraw upon providing at least 90 days or without cause. Under the AIMCO Operating Partnership written notice to the limited partners. No limited Agreement, the general partner may, in its sole partner may substitute a transferee of his units in discretion, prevent a transferee of an OP Unit from such limited partner's place without the consent of the becoming a substituted limited partner pursuant to the general partner which may be withheld at the sole AIMCO Operating Partnership Agreement. The general discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to
S-59 2753 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds any the general partner may, without the consent of the OP further covenants, restrictions or other provisions, or Unitholders, amend the AIMCO Operating Partnership making any deletions for the protection of the limited Agreement, amendments to the AIMCO Operating partners; (2) cures an ambiguity or corrects or Partnership Agreement require the consent of the supplements any provision in your partnership's agree- holders of a majority of the outstanding Common OP ment of limited partnership which may be defective or Units, excluding AIMCO and certain other limited inconsistent with any other provisions of your exclusions (a "Majority in Interest"). Amendments to partnership's agreement of limited partnership; or (3) the AIMCO Operating Partnership Agreement may be is required to comply with any applicable federal or proposed by the general partner or by holders of a state law or regulation, provided that any such Majority in Interest. Following such proposal, the amendment does not adversely affect the interests of general partner will submit any proposed amendment to the limited partners. Other amendments to your the OP Unitholders. The general partner will seek the partnership's agreement of limited partnership must be written consent of the OP Unitholders on the proposed approved by the limited partners owning more than 50% amendment or will call a meeting to vote thereon. See of the outstanding units. No amendment may be made "Description of OP Units -- Amendment of the AIMCO that: (1) increases the limited partners' liability or Operating Partnership Agreement" in the accompanying changes the contributions required of limited partners, Prospectus. their rights and interests under your partnership's agreement of limited partnership, without the consent of the general partner and any limited partner affected; (2) changes the powers, rights and duties of the general partner without the consent of the general partner; or (3) amends any provision of your partnership's agreement of limited partnership specifying a voting requirement in excess of that provided, without the consent of all of the limited partners.
Compensation and Fees Your general partner receives no fees but may receive The general partner does not receive compensation for reimbursement for expenses incurred in such capacity. 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 Part- nership 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.
S-60 2754 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, no limited partner has any personal negligence, no OP Unitholder has personal liability for liability, whether to your partnership, to any of the the AIMCO Operating Partnership's debts and partners or to the creditors of your partnership, for obligations, and liability of the OP Unitholders for the debts of your partnership or any of its losses the AIMCO Operating Partnership's debts and obligations beyond his capital contribution. No limited partner has is generally limited to the amount of their invest- any personal liability to the other limited partners on ment in the AIMCO Operating Partnership. However, the account of their capital contributions or to the limitations on the liability of limited partners for general partner, for any deficit in such limited the obligations of a limited partnership have not been partner's capital account. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner, acting through its partnership agreement, Delaware law generally requires affiliates, must devote such time to the affairs of a general partner of a Delaware limited partnership to your partnership as the general partner in its sole adhere to fiduciary duty standards under which it owes discretion deems appropriate. The general partner also its limited partners the highest duties of good faith, has the fiduciary responsibility for the safekeeping fairness and loyalty and which generally prohibit such and use of all funds and assets of your partnership, general partner from taking any action or engaging in whether or not in its immediate possession or control. any transaction as to which it has a conflict of The general partner will not employ, or permit another interest. The AIMCO Operating Partnership Agreement to employ, such funds or assets in any manner other expressly authorizes the general partner to enter into, than for the exclusive benefit of your partnership. on behalf of the AIMCO Operating Partnership, a right Subject to certain exceptions, your partnership's funds of first opportunity arrangement and other conflict may not be commingled with the funds of any other avoidance agreements with various affiliates of the person or entity. The general partner may have other AIMCO Operating Partnership and the general partner, on business interests and may engage in other activities, such terms as the general partner, in its sole and in addition to those relating to your partnership, absolute discretion, believes are advisable. The AIMCO including the rendering of advice or services of any Operating Partnership Agreement expressly limits the kind to other investors and the making of other liability of the general partner by providing that the investments. The pursuit of such ventures, even if general partner, and its officers and directors will competitive with the business of your partnership, will not be liable or accountable in damages to the AIMCO not be deemed wrong or improper. No affiliate of the Operating Partnership, the limited partners or general partner is obligated to present any particular assignees for errors in judgment or mistakes of fact or investment opportunity to your partnership. law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-61 2755 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the units, the the holders of the Preferred OP respect to certain limited matters limited partners may: (1) dis- Units will have the same voting such as certain amendments and solve your partnership; (2) remove rights as holders of the Common OP termination of the AIMCO Operating the general partner; (3) amend your Units. See "Description of OP Partnership Agreement and certain partnership's agreement of limited Units" in the accompanying transactions such as the partnership, subject to certain Prospectus. So long as any institution of bankruptcy exceptions; (4) elect a successor Preferred OP Units are outstand- proceedings, an assignment for the general partner; and (5) approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- being removed be necessary for effecting any amendment of any of the
S-62 2756 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS from office, resigning or becoming provisions of the Partnership Unit ship Agreement, the general partner insolvent. Your partnership will Designation of the Preferred OP has the power to effect the not dissolve but will be continued Units that materially and adversely acquisition, sale, transfer, by the limited partners if they affects the rights or preferences exchange or other disposition of elect to continue the business of the holders of the Preferred OP any assets of the AIMCO Operating within 90 days following one of the Units. The creation or issuance of Partnership (including, but not above events, and elect a successor any class or series of partnership limited to, the exercise or grant general partner. units, including, without of any conversion, option, limitation, any partnership units privilege or subscription right or that may have rights senior or any other right available in superior to the Preferred OP Units, connection with any assets at any shall not be deemed to materially time held by the AIMCO Operating adversely affect the rights or Partnership) or the merger, preferences of the holders of consolidation, reorganization or Preferred OP Units. With respect to other combination of the AIMCO the exercise of the above de- Operating Partnership with or into scribed voting rights, each another entity, all without the Preferred OP Units shall have one consent of the OP Unitholders. (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Cash Distributions $ per Preferred OP Unit; tribute quarterly all, or such from Operations will be made at the provided, however, that at any time portion as the general partner may end of each fiscal quarter. The and from time to time on or after in its sole and absolute discretion distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distribu- respect to distri-
S-63 2757 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tions in excess of cumulative butions of Available Cash, distributions on the Preferred OP distributions upon liquidation or Units. No interest, or sum of money other distributions. See "Per Share in lieu of interest, shall be and Per Unit Data" in the payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer all There is no public market for the There is no public market for the or part of his units to any person Preferred OP Units and the OP Units. The AIMCO Operating Part- if: (1) the transfer does not Preferred OP Units are not listed nership Agreement restricts the violate any provision of your on any securities exchange. The transferability of the OP Units. partnership's agreement of limited Preferred OP Units are subject to Until the expiration of one year partnership or any applicable laws restrictions on transfer as set from the date on which an OP or regulations; (2) the transfer of forth in the AIMCO Operating Unitholder acquired OP Units, units when added to all other Partnership Agreement. subject to certain exceptions, such assignments taking place in the OP Unitholder may not transfer all preceding 12 months, in the opinion Pursuant to the AIMCO Operating or any portion of its OP Units to of counsel to your partnership, Partnership Agreement, until the any transferee without the consent does not terminate your partnership expiration of one year from the of the general partner, which for Federal tax purposes; and (3) date on which a holder of Preferred consent may be withheld in its sole the transfer is not for less than OP Units acquired Preferred OP and absolute discretion. After the 10 units and, if the transferor Units, subject to certain expiration of one year, such OP retains any units, he must retain exceptions, such holder of Unitholder has the right to not less than 10 units. No assignee Preferred OP Units may not transfer transfer all or any portion of its may become a substitute limited all or any portion of its Pre- OP Units to any person, subject to partner unless: (1) the general ferred OP Units to any transferee the satisfaction of certain partner consents in writing to such without the consent of the general conditions specified in the AIMCO substitution, and such consent may partner, which consent may be Operating Partnership Agreement, be withheld at the sole discre- withheld in its sole and absolute including the general partner's tion of the general partner; (2) discretion. After the expiration of right of first refusal. See the assignee executes a written one year, such holders of Preferred "Description of OP Units -- acceptance and adoption of your OP Units has the right to transfer Transfers and Withdrawals" in the partnership's agreement of limited all or any portion of its Preferred accompanying Prospectus. partnership; (3) the assignee pays OP Units to any person, subject to all reasonable expenses connected the satisfaction of certain After the first anniversary of to such assignment; (4) the conditions specified in the AIMCO becoming a holder of Common OP assignor and assignee execute and Operating Partnership Agreement, Units, an OP Unitholder has the acknowledge any other instruments including the general partner's right, subject to the terms and that the right of first refusal. conditions of the AIMCO
S-64 2758 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS general partner deems necessary or Operating Partnership Agreement, to desirable; and (5) the general After a one-year holding period, a require the AIMCO Operating partner files an amendment to the holder may redeem Preferred OP Partnership to redeem all or a certificate of limited partnership. Units and receive in exchange portion of the Common OP Units held therefor, at the AIMCO Operating by such party in exchange for a Partnership's option, (i) subject cash amount based on the value of to the terms of any Senior Units, shares of Class A Common Stock. See cash in an amount equal to the "Description of OP Liquidation Preference of the Units -- Redemption Rights" in the Preferred OP Units tendered for accompanying Prospectus. Upon redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the AIMCO Operating Partnership Stock of AIMCO that pay an may, in its sole and absolute aggregate amount of dividends yield discretion but subject to the equivalent to the distributions on restrictions on the ownership of the Preferred OP Units tendered for Class A Common Stock imposed under redemption and are part of a class AIMCO's charter and the transfer or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-65 2759 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-66 2760 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-67 2761 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-68 2762 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-69 2763 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-70 2764 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-71 2765 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-72 2766 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-73 2767 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $ in 1996, $19,000 in 1997 and $31,000 for the first six months of 1998. The property manager received management fees of $64,000 in 1996, $19,000 in 1997 and $48,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-74 2768 YOUR PARTNERSHIP GENERAL Drexel Burnham Lambert Real Estate Associates, L.P. was organized in 1983, under the laws of the State of New York. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following a 203 unit residential apartment complex in Greensboro, North Carolina and an 80,410 sq. ft. office and warehouse in North Miami Beach, Florida. The general partner of your partnership is DBL Properties Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 37,273 units of limited partnership interest issued and outstanding, which were held of record by 1,701 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2032, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. S-75 2769 Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, neither the general partner nor its affiliates are liable to your partnership or the limited partners for any loss or damage incurred for any act performed or omitted in good faith in connection with the activities of your partnership or in dealing with third parties on behalf of your partnership, if such act or omission does not constitute fraud, negligence, misconduct or breach of fiduciary duty. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify, save harmless and pay all judgments and claims against the general partner and its affiliates for any liability, loss or damage incurred by them or by your partnership for any act performed or omitted to be performed by them in good faith in connection with the activities of your partnership or in dealing with third parties on behalf of your partnership, including costs and attorneys' fees (which attorneys' fees may be paid as incurred) and any amounts expended in the settlement of any claims of liability, loss or damage provided that such act or omission of the general partner does not constitute fraud, negligence, misconduct or breach of fiduciary duty by the general partner and provided further that any such indemnification will be recoverable only from the assets of your partnership and not from the assets of unitholders. All judgments against your partnership and the general partner, wherein the general partner is entitled to indemnification, must first be satisfied from your partnership's assets before the general partner will be responsible for such obligations. Your partnership will not pay for any insurance covering liability of the general partner or its affiliates for actions or omissions for which indemnification is not permitted under your partnership's agreement of limited partnership; provided, however, that nothing contained in your partnership's agreement of limited partnership will preclude your partnership from purchasing and paying for such types of insurance as would be customary for any person owning comparable assets and engaged in a similar business. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $7.50 January 1, 1996 - December 31, 1996......................... 7.59 January 1, 1997 - December 31, 1997......................... 0.11 January 1, 1998 - June 30, 1998............................. 3.81
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 1% interest in your partnership through the general partner of your partnership. AIMCO and its affiliates have not engaged in the any transactions in units of your partnership within the past 60 days. Except as set forth above, neither the S-76 2770 AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $46,939 1995........................................................ 46,939 1996........................................................ -- 1997........................................................ 19,000 1998 (through June 30)...................................... 31,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------- 1994........................................................ $31,567 1995........................................................ 33,402 1996........................................................ 34,000 1997........................................................ 64,000 1998 (through June 30)...................................... 48,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest S-77 2771 rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The financial statements of Drexel Burnham Lambert Real Estate Associates II included in the Drexel Burnham Lambert Real Estate Associates II Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Pannell Kerr Forster PC, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 2772 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Drexel Burnham Lambert Real Estate Associates, II (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2773 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2774 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2775 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2777
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2778
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2779
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2780 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2781 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF FOX STRATEGIC HOUSING INCOME PARTNERS IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1997, an affiliate estimated the net liquidation value of your units to be $492.62 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2782 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Fox Strategic Housing Income Partners.......... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-53 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-54 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 2783
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2784 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Fox Strategic Housing Income Partners. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Fox Capital Management Corporation, the general partner of Fox Partners VIII, the general partners of your partnership, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2785 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2786 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid any distributions since the calendar year 1995. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2787 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $148.00 per unit to $315.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $492.62 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100.00 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2788 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2789 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2790 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S- of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2791 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $492.62 per unit. However, we do not believe that this valuation represents the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $148.00 per unit to $315.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 2792 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 2793 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 2794 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 2795 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 16.8% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 2796 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 2797 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 2798 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 2799 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 2800 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $148.00 to $315.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 2801 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 8% of cash Available For Distribution on a quarterly basis, subject to certain conditions of payment, for its services as general partner and may also receive reimbursement for expenses generated in such capacity. As of December 31, 1997, $492,000 of your general partner's management fees have been subordinated to an 8% annualized return to the limited partners. It is unlikely such fees will ever be paid. The property manager received management fees of $78,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Fox Strategic Housing Income Partners was organized in June 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following: a 164-unit residential apartment complex in Westlake, Ohio and a 180-unit apartment complex in Atlanta, Georgia. The general partner of your partnership is Fox Partners VII of which Fox Capital Management Corporation is the general partner, which is a majority-owned subsidiary of AIMCO. Your property manager is a majority-owned subsidiary of AIMCO. As of January 1, 1998, there were 26,111 units of limited partnership interest issued and outstanding, which were held of record by 1,315 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For S-18 2802 additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2803 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation.......................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses......... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (161) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............................ (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income....................... 11,350 1,341 8,676 523 658 123 Interest expense...................... (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 5,609 (86) 4,636 -- -- -- Amortization of goodwill.............. (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,526 -- 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 210 107 147 94 56 48 Total owned apartment units (end of period)............................. 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities............................ (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S Predecessors(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities............................ (924) (16,352)
S-20 2804
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities.................. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)................ 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding..................... 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets............................ 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S Predecessors(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities.................. $(1,032) $ 14,114 Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2805 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2806
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2807 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2808 SUMMARY FINANCIAL INFORMATION OF FOX STRATEGIC HOUSING INCOME PARTNERS The summary financial information of Fox Strategic Housing Income Partners for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Fox Strategic Housing Income Partners for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. FOX STRATEGIC HOUSING INCOME PARTNERS
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- -------------------------------- 1998 1997 1997 1996 1995 ------ ------ ------ ------ ------ (IN THOUSANDS EXCEPT FOR UNIT DATA) OPERATING DATA: Total Revenues.......................................... $1,670 $1,595 $3,281 $3,198 $3,137 Net Income (Loss)....................................... 171 59 106 (281) (152) Net Income (Loss) per limited partnership unit.......... 5.24 1.80 3.26 (8.96) -- Distributions per limited partnership unit.............. -- -- -- -- 29.99
JUNE 30, DECEMBER 31, -------------------- --------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation............ $14,679 $15,194 $14,948 $15,411 $15,847 Total Assets............................................ 20,612 20,557 20,056 19,999 20,028 Notes Payable........................................... 8,283 8,321 7,836 7,891 7,788 Partners' Capital (Deficit)............................. 11,725 11,507 11,554 11,448 11,729
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING FOX STRATEGIC HOUSING PARTNERSHIP INCOME PARTNERS ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 2809 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $148.00 per unit to $315.00 per unit from January 1, 1997 to September 30, 1998. However, we do not believe that these prices represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $492.62 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 2810 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 2811 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. No distributions have been made with respect to your units since the calendar year 1995. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 2812 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 16.825% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 2813 Previous Tender Offer In August, 1998, IPLP, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 3,919 units (representing approximately 15% of the number outstanding) at a cash purchase price of $260.00 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to S-30 2814 continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-31 2815 The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2816 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2817 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. You may tender any or all of your units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 2818 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2819 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2820 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2821 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2822 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2823 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2824 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2825 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 4,554 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 17.44% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 2826 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 2827 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2828 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2829 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 2830 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2831 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION CAPITAL GROSS PROPERTY PROPERTY OPERATING INCOME RATE EXPENDITURES VALUE - -------- ---------------- -------------- ------------ -------------- Barrington Place $ % $ $ Westlake, Ohio Wood View Apartments Atlanta, Georgia
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 2832 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 2833 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. No distributions with respect to your units have been made since 1995. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 2834 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 2835 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $148.00 to $315.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1997 to September 30, 1998 an aggregate of 4,996 units (representing less than 19.13% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from October 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. Prices are not available prior to October 1, 1996. FOX STRATEGIC HOUSING INCOME PARTNERS REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $160.00 $286.90 Second Quarter............................................ 201.00 306.87 First Quarter............................................. 245.00 315.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 226.00 245.00 Third Quarter............................................. 148.00 247.56 Second Quarter............................................ 180.00 228.82 First Quarter............................................. 185.00 240.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 214.00 230.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading S-52 2836 system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Annual Estimates of Net Asset Value. An affiliate of your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase outstanding units. That estimate of your partnership's net asset value per unit as of June 30, 1997 was $492.62. This estimated net asset value is based on a hypothetical sale of the partnership's [properties] and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-53 2837 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-54 2838 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-55 2839 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-56 2840 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 2841 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available For Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2025. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to invest in, acquire, The purpose of the AIMCO Operating Partnership is to manage and ultimately sell income-producing real conduct any business that may be lawfully conducted by properties which are improved or capable of improvement a limited partnership organized pursuant to the or which will be improved within a reasonable period Delaware Revised Uniform Limited Partnership Act (as after acquisition. Your partnership may enter into amended from time to time, or any successor to such ventures, partnerships, REITs and other business ar- statute) (the "Delaware Limited Partnership Act"), rangements with respect to real estate deemed prudent provided that such business is to be conducted in a by the general partner in order to promote the business manner that permits AIMCO to be qualified as a REIT, of your partnership, subject to certain restrictions unless AIMCO ceases to qualify as a REIT. The AIMCO contained in your partnership's agreement of limited Operating Partnership is authorized to perform any and partnership. In addition, your partnership may engage all acts for the furtherance of the purposes and in any other business or do any and all acts and things business of the AIMCO Operating Partnership, provided which may be necessary, incidental or convenient to that the AIMCO Operating Partnership may not take, or carry on your partnership's purpose and business. refrain from taking, any action which, in the judgment Subject to restrictions contained in your partnership's of its general partner could (i) adversely affect the agreement of partnership, your partnership may perform ability of AIMCO to continue to qualify as a REIT, (ii) all acts necessary, advisable or convenient to the subject AIMCO to certain income and excise taxes, or business of your partnership, including borrowing money (iii) violate any law or regulation of any governmental and creating liens. 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.
S-58 2842 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 100,000 units for time to the limited partners and to other persons, and cash. The capital contribution need not be equal for to admit such other persons as additional limited all limited partners and no action or consent is partners, on terms and conditions and for such capital required in connection with the admission of any contributions as may be established by the general additional limited partners. However, after February partner in its sole discretion. The net capital 28, 1989, the general partner is prohibited from contribution need not be equal for all OP Unitholders. admitting any additional limited partners. The general No action or consent by the OP Unitholders is required partner of your partnership may not issue units in in connection with the admission of any additional OP exchange for property. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of partnership, the The AIMCO Operating Partnership may lend or contribute general partner may not cause your partnership to enter funds or other assets to its subsidiaries or other into contracts with itself or its affiliates which persons in which it has an equity investment, and such would bind your partnership after the bankruptcy, persons may borrow funds from the AIMCO Operating dissolution or liquidation of your partnership. The Partnership, on terms and conditions established in the general partner may not grant to itself or an affiliate sole and absolute discretion of the general partner. To an exclusive right to sell any partnership assets. The the extent consistent with the business purpose of the general partner may not sell or lease real property in AIMCO Operating Partnership and the permitted which it or an affiliate has an interest to your activities of the general partner, the AIMCO Operating partnership. The general partner may not purchase or Partnership may transfer assets to joint ventures, lease real property from your partnership. The general limited liability companies, partnerships, partner may lend money to your partnership, but the corporations, business trusts or other business general partner may not receive interest or other entities in which it is or thereby becomes a financing charges in excess of the lesser of (1) those participant upon such terms and subject to such amounts which would be charged by third-party financing conditions consistent with the AIMCO Operating Part- institutions on comparable loans for the same purpose nership Agreement and applicable law as the general in the same geographic area, or (2) 2% above the prime partner, in its sole and absolute discretion, believes lending rate established by Bank of America, N.T. & to be advisable. Except as expressly permitted by the S.A. Loans made by the general partner to the AIMCO Operating Partnership Agreement, neither the partnership are also subject to certain other general partner nor any of its affiliates may sell, requirements in your partnership's agreement of limited transfer or convey any property to the AIMCO Operating partnership. Neither the general partner nor its Partnership, directly or indirectly, except pursuant to affiliates may receive directly or indirectly a transactions that are determined by the general partner commission or fee in connection with the reinvestment in good faith to be fair and reasonable. of the proceeds of a financing or refinancing of partnership property. Neither the general partner nor its affiliates may enter into an agreement or contract with your partnership for the development of any partnership property or the construction of improvements on any partnership property. The general partner of your partnership may not cause your partner- ship to enter into any agreements with itself or its affiliates which are not in writing and which are not subject to termination by a majority vote of the limited partners without penalty upon not more than 60 days written notice to the general partner. The general partner may not cause your partnership to lend money to the general partner or its affiliates. The general partner of your partnership may place record title to your partnership's assets in the name of a nominee for any purpose convenient or beneficial to your partnership.
S-59 2843 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage or restrictions on borrowings, and the general partner has other lien on any of your partnership's assets. At no full power and authority to borrow money on behalf of time may the general partner cause your partnership to the AIMCO Operating Partnership. The AIMCO Operating incur long-term secured indebtedness with respect to Partnership has credit agreements that restrict, among any partnership property in an amount equal to 80% of other things, its ability to incur indebtedness. See the then-appraised value of such property. Your "Risk Factors -- Risks of Significant Indebtedness" in partnership also may not incur indebtedness which the accompanying Prospectus. exceeds the sum of (1) 80% of the aggregate purchase price as to all partnership properties that have not been refinanced and (2) 80% of the aggregate value as determined by the lender as of the date of refinancing as to all properties which have been refinanced. The general partner may cause your partnership to prepay, consolidate, refinance or otherwise modify any of your partnership's debt on such terms and in such amounts as the general partner deems to be in the best interests of your partnership. Your partnership may not incur mortgage financing which amortizes over more than a thirty-year period or which requires a balloon payment prior to the earlier of (1) ten years from the date your partnership acquires a property or (2) two years subsequent to the anticipated holding period of the property, but no sooner than seven years from the date your partnership acquired the property, except with respect to financing representing, in the aggregate, 25% or less than the total purchase price of the properties acquired or any financing from an alternative financing source with a commitment to allow refinancing to extend the maturity of any such balloon payment. The general partner may not cause your partnership to finance the purchase of a property with an all-inclusive or "wraparound" note and mortgage unless certain conditions are met.
Review of Investor Lists Your partnership's agreement of partnership entitles a Each OP Unitholder has the right, upon written demand limited partner to inspect your partnership's books and with a statement of the purpose of such demand and at records, your partnership agreement, any separate such OP Unitholder's own expense, to obtain a current certificates of limited partnership and copies of each list of the name and last known business, residence or appraisal of partnership property. Your partnership is mailing address of the general partner and each other required to furnish any limited partner with a copy of OP Unitholder. the list of partners' names and addresses and capital contributions upon written request and payment of reasonable costs of duplication.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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
S-60 2844 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 The general partner of your partnership has no Notwithstanding anything to the contrary set forth in liability to the partnership or any limited partner for the AIMCO Operating Partnership Agreement, the general any loss suffered by your partnership which arises out partner is not liable to the AIMCO Operating of any action or inaction of the general partner, if Partnership for losses sustained, liabilities incurred the general partner, in good faith, determined that or benefits not derived as a result of errors in such action or inaction was in the best interests of judgment or mistakes of fact or law of any act or the partnership and did not constitute negligence or omission if the general partner acted in good faith. misconduct of the general partner. The general partner The AIMCO Operating Partnership Agreement provides for and its affiliates are entitled to indemnification by indemnification of AIMCO, or any director or officer of your partnership against any liability, loss or damage AIMCO (in its capacity as the previous general partner incurred by them in connection with the business of of the AIMCO Operating Partnership), the general your partnership, provided that the general partner partner, any officer or director of general partner or determined in good faith that the course of conduct the AIMCO Operating Partnership and such other persons pursued was in the best interests of your partnership, as the general partner may designate from and against and that such liability or loss did not result from the all losses, claims, damages, liabilities, joint or negligence or misconduct of the general partner. Such several, expenses (including legal fees), fines, indemnity will be paid only from the assets of your settlements and other amounts incurred in connection partnership and not from the assets of the limited with any actions relating to the operations of the partners. Notwithstanding any other provision to the AIMCO Operating Partnership, as set forth in the AIMCO contrary, the general partner and its affiliates will Operating Partnership Agreement. The Delaware Limited be liable and will not be entitled to indemnity for any Partnership Act provides that subject to the standards loss, damage or cost resulting from violations of and restrictions, if any, set forth in its partnership federal or state securities laws in connection with the agreement, a limited partnership may, and shall have units unless there is a successful adjudication of the the power to, indemnify and hold harmless any partner merits of each count involving such securities law or other person from and against any and all claims and violations, such claims have been dismissed with demands whatsoever. It is the position of the prejudice on the merits by a court of competent Securities and Exchange Commission that indemnification jurisdiction or a court of competent jurisdiction of directors and officers for liabilities arising under approves a settlement of such claims. In any claim for the Securities Act is against public policy and is indemnification for federal or state securities law unenforceable pursuant to Section 14 of the Securities violations, the party seeking indemnification must Act of 1933. place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. Affiliates of the general partner will not be entitled to indemnification for claims against an affiliate solely by your partnership and claims against an affiliate to the extent that they do not arise out of acts performed or omitted to be performed by the general partner or such affiliate on behalf of the general partner.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove any has exclusive management power over the business and general partner and elect a successor general partner affairs of the AIMCO Operating Partnership. The general upon a vote of a majority in interest of the limited partner may not be removed as general partner of the partners. With the consent of a majority in interest of AIMCO Operating Partnership by the OP Unitholders with the limited partners, the general partner may at any or without cause. Under the AIMCO Operating Partnership time designate an affiliate of the general partner or Agreement, the general partner may, in its sole other person as an additional general partner of your discretion, prevent a transferee of an OP Unit from partnership. A limited partner may not substitute a becoming a substituted limited partner pursuant to the transferee of his units in such limited partner's place AIMCO Operating Partnership Agreement. The general without the consent of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agree-
S-61 2845 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ment contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of partnership may be With the exception of certain circumstances set forth amended by the general partner without the consent of in the AIMCO Operating Partnership Agreement, whereby the limited partners if such amendment: (1) adds to the the general partner may, without the consent of the OP representation, duties or obligations of the general Unitholders, amend the AIMCO Operating Partnership partner or its affiliates or surrenders any right or Agreement, amendments to the AIMCO Operating power granted to the general partner or its affiliates Partnership Agreement require the consent of the for the benefit of the limited partners, (2) cures any holders of a majority of the outstanding Common OP ambiguity, corrects or supplements any provisions that Units, excluding AIMCO and certain other limited may be inconsistent with any other provision or makes exclusions (a "Majority in Interest"). Amendments to any other provision with respect to matters or the AIMCO Operating Partnership Agreement may be questions under your partnership's agreement of lim- proposed by the general partner or by holders of a ited partnership consistent with the provisions of your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership, (3) general partner will submit any proposed amendment to deletes or adds any provision required by any the OP Unitholders. The general partner will seek the applicable law or government agency, and (4) reflects written consent of the OP Unitholders on the proposed the addition of limited partners or admission of amendment or will call a meeting to vote thereon. See substituted limited partners or the reduction of the "Description of OP Units -- Amendment of the AIMCO capital accounts upon the return of capital to limited Operating Partnership Agreement" in the accompanying partners. Any amendment that (1) makes a limited Prospectus. partner a general partner, (2) eliminates or decreases the limited liability of a limited partner, (3) alters the interest of the general partner or the limited partners with respect to allocations and distributions from your partnership, with certain exceptions, or (4) affects the status of your partnership as a partnership for federal income tax purposes may be made by the general partner without the consent of each limited partner who would be adversely affected by such an amendment. Any other amendment to your partnership's agreement of limited partnership may not be made without the consent of a majority in interest of the limited partners.
Compensation and Fees Your partnership's agreement of limit partnership The general partner does not receive compensation for provides for a second partner's management fee of 8% of its services as general partner of the AIMCO Operating Cash Available For Distribution on a quarterly basis, Partnership. However, the general partner is entitled subject to certain conditions of payment, for its to payments, allocations and distributions in its services as general partner and may also receive capacity as general partner of the AIMCO Operating reimbursement for expenses generated in such capacity Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 2846 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of partnership, a Except for fraud, willful misconduct or gross limited partner is not bound by, or personally liable negligence, no OP Unitholder has personal liability for for, the expenses, liabilities or obligations of your the AIMCO Operating Partnership's debts and partnership. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner of your partnership partnership agreement, Delaware law generally requires has the fiduciary responsibility for the safekeeping a general partner of a Delaware limited partnership to and use of all funds and assets of your partnership, adhere to fiduciary duty standards under which it owes whether or not such funds and assets are in the general its limited partners the highest duties of good faith, partner's possession or control. The general partner fairness and loyalty and which generally prohibit such may not commingle partnership funds with the funds of general partner from taking any action or engaging in any other person except under certain circumstances. any transaction as to which it has a conflict of The general partner may not employ or permit others to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the exclusive benefit of your partnership. The general on behalf of the AIMCO Operating Partnership, a right partner or its affiliates may engage in or possess an of first opportunity arrangement and other conflict interest in any other business or venture of every avoidance agreements with various affiliates of the nature, independently or with others, including, but AIMCO Operating Partnership and the general partner, on not limited to, the ownership, leasing, financing, such terms as the general partner, in its sole and leasing, operation, management, brokerage and absolute discretion, believes are advisable. The AIMCO development of real property. 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 2847 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may, Units will have the same voting such as certain amendments and subject to certain exceptions, rights as holders of the Common OP termination of the AIMCO Operating amend your partnership's agreement Units. See "Description of OP Partnership Agreement and certain of limited partnership, dissolve Units" in the accompanying transactions such as the your partnership, remove or elect a Prospectus. So long as any institution of bankruptcy general partner, extend the term of Preferred OP Units are outstand- proceedings, an assignment for the your partnership and approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agree- Part-
S-64 2848 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS The general partner of your ment, the affirmative vote or nership or the admission of a partnership may cause the consent of holders of at least 50% successor general partner. dissolution of your partnership by of the outstanding Preferred OP retiring. Your partnership may be Units will be necessary for Under the AIMCO Operating Partner- continued by the remaining general effecting any amendment of any of ship Agreement, the general partner partner and a majority vote of the the provisions of the Partnership has the power to effect the limited partners within 120 days Unit Designation of the Preferred acquisition, sale, transfer, after the retirement of a general OP Units that materially and exchange or other disposition of partner. adversely affects the rights or any assets of the AIMCO Operating preferences of the holders of the Partnership (including, but not Preferred OP Units. The creation or limited to, the exercise or grant issuance of any class or series of of any conversion, option, partnership units, including, privilege or subscription right or without limitation, any partner- any other right available in ship units that may have rights connection with any assets at any senior or superior to the Preferred time held by the AIMCO Operating OP Units, shall not be deemed to Partnership) or the merger, materially adversely affect the consolidation, reorganization or rights or preferences of the other combination of the AIMCO holders of Preferred OP Units. With Operating Partnership with or into respect to the exercise of the another entity, all without the above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and from time to time on or after in its sole and absolute discretion results and net sales or the fifth anniversary of the issue determine, of Available Cash (as refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by partnership's assets. adjust the annual distribution rate the AIMCO Operating Partnership on the Preferred OP Units to the during such quarter to the general lower of (i) % plus the annual partner, the special limited interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions Units issued in the future may
S-65 2849 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS will be cumulative from the date of have priority over the general original issue. Holders of partner, the special limited Preferred OP Units will not be partner and holders of Common OP entitled to receive any distribu- Units with respect to distri- tions in excess of cumulative butions of Available Cash, distributions on the Preferred OP distributions upon liquidation or Units. No interest, or sum of money other distributions. See "Per Share in lieu of interest, shall be and Per Unit Data" in the payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer one There is no public market for the There is no public market for the or more whole units to any person Preferred OP Units and the OP Units. The AIMCO Operating Part- by a written assignment, duly Preferred OP Units are not listed nership Agreement restricts the executed by the assignor of the on any securities exchange. The transferability of the OP Units. units, the terms of which are not Preferred OP Units are subject to Until the expiration of one year contrary to any terms of your restrictions on transfer as set from the date on which an OP partnership agreement, provided forth in the AIMCO Operating Unitholder acquired OP Units, that no limited partner may Partnership Agreement. subject to certain exceptions, such transfer any units if your OP Unitholder may not transfer all partnership's counsel is of the Pursuant to the AIMCO Operating or any portion of its OP Units to opinion that such a transfer would Partnership Agreement, until the any transferee without the consent be in violation of any applicable expiration of one year from the of the general partner, which securities laws. If transfers must date on which a holder of Preferred consent may be withheld in its sole be suspended because a termination OP Units acquired Preferred OP and absolute discretion. After the of your partnership for tax Units, subject to certain expiration of one year, such OP purposes would result, the general exceptions, such holder of Unitholder has the right to partner will notify all limited Preferred OP Units may not transfer transfer all or any portion of its partners that sales and transfers all or any portion of its Pre- OP Units to any person, subject to have been suspended. No transfer to ferred OP Units to any transferee the satisfaction of certain a qualified pension, profit shar- without the consent of the general conditions specified in the AIMCO ing or stock bonus plan, Keogh partner, which consent may be Operating Partnership Agreement, plan, individual retirement account withheld in its sole and absolute including the general partner's or other tax-exempt entity is discretion. After the expiration of right of first refusal. See permitted. A transferee may be one year, such holders of Preferred "Description of OP Units -- substituted as a limited partner OP Units has the right to transfer Transfers and Withdrawals" in the if, in addition to the above all or any portion of its Preferred accompanying Prospectus. requirements: (1) a written OP Units to any person, subject to assignment is duly executed and the satisfaction of certain After the first anniversary of acknowledged by the assignor and conditions specified in the becoming a
S-66 2850 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS assignee and specifies the number AIMCO Operating Partnership Agree- holder of Common OP Units, an OP of units being assigned and sets ment, including the general Unitholder has the right, subject forth the intention that the partner's right of first refusal. to the terms and conditions of the assignee to succeed to the as- AIMCO Operating Partnership signor's interest as a substitute After a one-year holding period, a Agreement, to require the AIMCO limited partner, (2) the assignee holder may redeem Preferred OP Operating Partnership to redeem all pays a transfer fee, (3) the Units and receive in exchange or a portion of the Common OP Units written consent of the general therefor, at the AIMCO Operating held by such party in exchange for partner to such substitution was Partnership's option, (i) subject a cash amount based on the value of obtained, and (4) the assignor and to the terms of any Senior Units, shares of Class A Common Stock. See assignee have complied with such cash in an amount equal to the "Description of OP other conditions as set forth in Liquidation Preference of the Units -- Redemption Rights" in the your partnership's agreement of Preferred OP Units tendered for accompanying Prospectus. Upon limited partnership. redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the AIMCO Operating Partnership Stock of AIMCO that pay an may, in its sole and absolute aggregate amount of dividends yield discretion but subject to the equivalent to the distributions on restrictions on the ownership of the Preferred OP Units tendered for Class A Common Stock imposed under redemption and are part of a class AIMCO's charter and the transfer or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 2851 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 2852 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 2853 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 2854 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 2855 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 2856 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 2857 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 2858 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 2859 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 8% of Cash Available For Distribution on quarterly basis, subject to certain conditions of payment, for its services as general partner and may also receive reimbursement for expenses generated in such capacity. As of December 31, 1997, $492,000 of your general partner's management fees have been subordinated to an 8% annualized return to the limited partners. It is unlikely such fees will ever be paid. The property manager received management fees of $150,000 in 1996, $153,000 in 1997 and $78,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 2860 YOUR PARTNERSHIP GENERAL Fox Strategic Housing Income Partners was organized in June 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following: a 164-unit residential apartment complex in Westlake, Ohio and a 180-unit apartment complex in Atlanta, Georgia. The general partner of your partnership is Fox Partners VII of which Fox Capital Management Corporation is the general partner, which is a majority-owned subsidiary of AIMCO. Your property manager is a majority-owned subsidiary of AIMCO. As of January 1, 1998, there were 26,111 units of limited partnership interest issued and outstanding, which were held of record by 1,315 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated March 27, 1984, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell its properties eight to ten years after acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2025, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all S-77 2861 considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. The general partner of your partnership has no liability to the partnership or any limited partner for any loss suffered by your partnership which arises out of any action or inaction of the general partner, if the general partner, in good faith, determined that such action or inaction was in the best interests of the partnership and did not constitute negligence or misconduct of the general partner. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any liability, loss or damage incurred by them in connection with the business of your partnership, provided that the general partner determined in good faith that the course of conduct pursued was in the best interests of your partnership, and that such liability or loss did not result from the negligence or misconduct of the general partner. Such indemnity will be paid only from the assets of your partnership and not from the assets of the limited partners. Notwithstanding any other provision to the contrary, the general partner and its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. Affiliates of the general partner will not be entitled to indemnification for claims against an affiliate solely by your partnership and claims against an affiliate to the extent that they do not arise out of acts performed or omitted to be performed by the general partner or such affiliate on behalf of the general partner. The provisions of advances from your partnership's funds to the general partner or its affiliates for legal expenses and other costs incurred as a result of a legal action is permissible only if the following three conditions are satisfied: (1) the legal action related to the performance of duties or services by the general partner or its affiliates on behalf of your partnership; (2) the legal action is initiated by a third party who is not a limited partner of your partnership and (3) the general partner or its affiliates undertake to repay the advanced funds to your partnership in cases in which they would not be entitled to indemnification under your partnership's agreement of limited partnership. No partnership funds will be used to purchase any insurance that insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. DISTRIBUTIONS Your partnership has paid no distributions since calendar 1995. S-78 2862 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 16.825% interest in your partnership, including 12,858 units held by us and the interest held by the general partner of your partnership. AIMCO and its affiliates have not engaged in the following transactions in units of your partnership within the past 60 days. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES As of December 31, 1997, $492,000 of your general partner's management fees have been subordinated to an 8% annualized return to the limited partners. It is unlikely such fees will ever be paid. In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $172,000 1995........................................................ 141,000 1996........................................................ 150,000 1997........................................................ 153,000 1998 (through June 30)...................................... 78,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit S-79 2863 facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Fox Strategic Housing Income Partners appearing in Fox Strategic Housing Income Partners Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 2864 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Fox Strategic Housing Income Partners (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2865 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2866 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2867 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your general of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.................... Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez................. Vice Chairman, President and Director Thomas W. Toomey................... Executive Vice President -- Finance and Administration Joel F. Bonder..................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.................... Executive Vice President Robert Ty Howard................... Executive Vice President -- Ancillary Services Steven D. Ira...................... Executive Vice President and Co-Founder David L. Williams.................. Executive Vice President -- Property Operations Harry G. Alcock.................... Senior Vice President -- Acquisitions Troy D. Butts...................... Senior Vice President and Chief Financial Officer Richard S. Ellwood................. Director J. Landis Martin................... Director Thomas L. Rhodes................... Director John D. Smith...................... Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2868
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2869
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2870
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2871
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2872 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2873 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, affiliates of your general partner estimated the net asset value of your units to be $682 per unit and the net liquidation value of your units to be $684.33 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in one 269 unit apartment complex and a 102,000 square foot office building to holding an interest in our large portfolio of properties. In the future, the two properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2874 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of HCW Pension Real Estate Fund Limited Partnership....... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-56 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76
i 2875
PAGE ---- Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77 Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79
PAGE ---- Compensation Paid to the General Partner and its Affiliates............................. S-79 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2876 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in HCW Pension Real Estate Fund Limited Partnership. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in IH, Inc., which is the general partner of HCW General Partner Ltd., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2877 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2878 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $18.73 per unit for the year ended December 31, 1997. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2879 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $43 per unit to $495 per unit from January 1, 1997 to June 30, 1998. As of June 30, 1998, affiliates of your general partner estimated the net asset value of your units to be $682 per unit and the net liquidation value of your units to be $684.33 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your S-4 2880 partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you hold a minimum of five units if any are retained (2 units in certain circumstances), but such restrictions do not apply to transfers to affiliates such as the AIMCO Operating Partnership. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, S-5 2881 we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2882 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2883 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, affiliates of your general partner estimated the net asset value of your units to be $682 per unit and the net liquidation value of your units to be $684.33 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $43 per unit to $495 per unit from January 1, 1997 to June 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of S-8 2884 all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general S-9 2885 partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 2886 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 2887 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 2.5% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 2888 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2889 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 2890 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2891 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2892 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $43.00 to $495.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2893 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $111,000 for the first six months of 1998. The property manager received management fees of $79,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP HCW Pension Real Estate Fund Limited Partnership was organized on April 30, 1984, under the laws of the State of Massachusetts. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer S-18 2894 potential capital appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of 269 unit apartment complex in Carbondale, Illinois and a 102,000 sq. ft. office building in Kansas City, Missouri. The general partner of your partnership is HCW General Partner Ltd. The general partner of HCW General Partner Ltd. is IH, Inc., which is a majority-owned subsidiary of AIMCO. The property manager, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 15,698 units of limited partnership interest issued and outstanding, which were held of record by 1,799 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2895 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2896
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2897 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2898
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2899 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2900 SUMMARY FINANCIAL INFORMATION OF HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP The summary financial information of HCW Pension Real Estate Fund Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for HCW Pension Real Estate Fund Limited Partnership for the years ended December 31, 1997 and 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- --------------------------------- 1998 1997 1997 1996 1995 -------- -------- --------- --------- --------- IN THOUSANDS, EXCEPT UNIT DATA (UNAUDITED) OPERATING DATA: Total Revenues.................................. $ 1,395 $ 1,410 $ 2,999 $ 3,143 $ 3,207 Net Income (Loss)............................... (42) 118 154 376 371 Net Income (Loss) per limited partnership unit.......................................... (2.61) 7.39 9.62 23.44 23.16 Distributions per limited partnership unit...... -- -- 18.73 18.73 28.71
JUNE 30, DECEMBER 31, ----------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation...... $10,319 $10,305 $10,499 $10,106 $10,539 Total Assets...................................... 12,018 12,279 12,226 12,071 12,107 Notes Payable..................................... -- -- -- -- -- Partners' Capital................................. 11,341 11,647 11,383 11,529 11,453
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING HCW PENSION REAL ESTATE PARTNERSHIP FUND LIMITED PARTNERSHIP ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $ -- $18.73
S-25 2901 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $43 per unit to $495 per unit from January 1, 1997 to June 30, 1998. As of June 30, 1998, an affiliate of your general partner estimated the net asset value of your units to be $682 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $684.33 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 2902 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. S-27 2903 This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $18.73 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." S-28 2904 FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your S-29 2905 partnership is a majority-owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the property manager that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.5% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. On September 23, 1998, Cooper River Properties, LLC, then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired units (representing approximately % of the number outstanding) at a cash purchase price of $475 per unit on , 1998. Prior to such tender offer, Madison Liquidating Partners, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $235 per unit and purchased shares in , 1998. Other non-affiliated tender offers have been made from $200 to $275.00 per unit since January 1, 1997. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and S-30 2906 liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one S-31 2907 class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 2908 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 2909 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you retain a minimum of 10 units if any are retained (2 units in certain circumstances) but such restrictions do not apply to transfers to affiliates, such as the AIMCO Operating Partnership. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 2910 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 2911 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 2912 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 2913 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 2914 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 2915 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 2916 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 2917 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 2918 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-43 2919 compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 2920 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 2921 received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax S-46 2922 basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 2923 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 2924 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table.
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Lewis Park Apartments.................... $ % $ Highland Professional Towers............. $ % $
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 2925 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 2926 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $18.73 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 2927 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 2928 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $43.00 to $495.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to June 30, 1998 an aggregate of 1,102 units (representing less than 7.1% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to June 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter.................................... $356 $551 (c) (c) Second Quarter................................... 43 495 477 490 First Quarter.................................... 200 454 453 500 Fiscal Year Ended December 31, 1997: Fourth Quarter................................... 306 450 305 425 Third Quarter.................................... 175 425 400 459 Second Quarter................................... 155 354 340 434 First Quarter.................................... 200 348 300 335 Fiscal Year Ended December 31, 1996: Fourth Quarter................................... 243 301 305 381 Third Quarter.................................... 160 326 300 300 Second Quarter................................... 266 310 -- -- First Quarter.................................... 220 225 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general S-53 2929 partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $682. Your general partner's three most recent estimates of your partnership's net asset values were $644, $731, and $680 as of December 31, 1997, 1996 and 1995, respectively. These estimated net asset values are based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your S-54 2930 partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Estimate of Net Asset Value in Connection with the MAE GP Merger. In connection with the March 7, 1998 merger of MAE GP Corporation into IPT, IPT estimated the net asset value of a unit (as of December 31, 1997) to be $681. This net asset value estimate was based on a hypothetical sale of all of your partnership's [properties] and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the partnership's cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the partnership's other known liabilities. This net asset value estimate did not take into account (i) timing considerations or (ii) costs associated with winding up your partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of the net asset value of a unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-55 2931 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and S-56 2932 local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect S-57 2933 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 2934 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Massachusetts law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available For Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is October 31, 2024. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to locate, evaluate, The purpose of the AIMCO Operating Partnership is to acquire, hold, maintain, develop, improve, operate, conduct any business that may be lawfully conducted by sell, lease, finance, dispose of and otherwise invest a limited partnership organized pursuant to the in and deal with a diversified portfolio of Delaware Revised Uniform Limited Partnership Act (as income-producing real estate investments through amended from time to time, or any successor to such mortgage loans, ground lease financing transactions and statute) (the "Delaware Limited Partnership Act"), unleveraged property purchases and to engage in any provided that such business is to be conducted in a other activities related or incidental thereto. Subject manner that permits AIMCO to be qualified as a REIT, to restrictions contained in your partnership's unless AIMCO ceases to qualify as a REIT. The AIMCO agreement of partnership, your partnership may perform Operating Partnership is authorized to perform any and all acts necessary, advisable or convenient to the all acts for the furtherance of the purposes and business of your partnership, including borrowing money business of the AIMCO Operating Partnership, provided and creating liens. 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.
S-59 2935 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash to persons who meet time to the limited partners and to other persons, and the criteria specified in your partnership's agreement to admit such other persons as additional limited of limited partnership. The capital contribution need partners, on terms and conditions and for such capital not be equal for all limited partners and no action or contributions as may be established by the general consent is required in connection with the admission of partner in its sole discretion. The net capital any additional limited partners. However, after contribution need not be equal for all OP Unitholders. September 30, 1985, the general partner is prohibited No action or consent by the OP Unitholders is required from admitting any additional limited partners. The in connection with the admission of any additional OP general partner of your partnership may not issue units Unitholder. See "Description of OP Units -- Management in exchange for property. by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of partnership, the The AIMCO Operating Partnership may lend or contribute general partner may not grant to itself or an affiliate funds or other assets to its subsidiaries or other an exclusive right to sell any property for your persons in which it has an equity investment, and such partnership. Neither the general partner nor its persons may borrow funds from the AIMCO Operating affiliates may receive directly or indirectly a Partnership, on terms and conditions established in the commission or fee in connection with the reinvestment sole and absolute discretion of the general partner. To of the proceeds of a sale, financing or refinancing of the extent consistent with the business purpose of the partnership property. Neither the general partner nor AIMCO Operating Partnership and the permitted its affiliates may enter into an agreement or contract activities of the general partner, the AIMCO Operating with your partnership for the development of any Partnership may transfer assets to joint ventures, partnership property or the construction of limited liability companies, partnerships, improvements on any partnership property. The general corporations, business trusts or other business partner of your partnership may not cause your entities in which it is or thereby becomes a partnership to enter into any agreements with a general participant upon such terms and subject to such partner or its affiliates which are not in writing and conditions consistent with the AIMCO Operating Part- which is not subject to termination without penalty by nership Agreement and applicable law as the general either party upon not more than 60 days written notice. partner, in its sole and absolute discretion, believes The general partner or its affiliates that are parties to be advisable. Except as expressly permitted by the to such an agreement must have previously and AIMCO Operating Partnership Agreement, neither the independently been engaged in the business of rendering general partner nor any of its affiliates may sell, the services or selling or leasing the goods to be transfer or convey any property to the AIMCO Operating provided, as an ordinary and ongoing business. The Partnership, directly or indirectly, except pursuant to general partner may not cause your partnership to lend transactions that are determined by the general partner money to the general partner or its affiliates. The in good faith to be fair and reasonable. general partner of your partnership may purchase property in its own name or in the name of a nominee and temporarily hold title thereto for the purpose of facilitating the acquisition or financing of such property by your partnership if (1) the property is purchased by your partnership at a purchase price no greater than the cost of such investment to the seller, (2) there is no difference in the interest rates on the loans secured by the property at the time it is acquired by the general partner and the time it is acquired by your partnership, and (3) neither the general partner nor its affiliates received any economic advantage by reason of having held title to the property. Affiliates of the general partner are entitled to a property management fee for providing professional property management services for the part- nership properties. For residential properties, such fees are equal to 5% of the annual gross revenue from such properties. For industrial and commercial properties, such fees range from 1% to 6% of the gross revenue from such properties.
S-60 2936 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and to secure such debt by mortgage or restrictions on borrowings, and the general partner has other lien on any of your partnership's assets. The full power and authority to borrow money on behalf of general partner of your partnership is authorized to the AIMCO Operating Partnership. The AIMCO Operating make mortgage loans, leasehold mortgages and wraparound Partnership has credit agreements that restrict, among mortgages which are secured by your partnership's other things, its ability to incur indebtedness. See properties. At no time may the general partner pledge "Risk Factors -- Risks of Significant Indebtedness" in or mortgage an aggregate amount equal to 80% of the the accompanying Prospectus. purchase price of your partnership's properties. The general partner may cause your partnership to prepay, consolidate, refinance or otherwise modify any of your partnership's debt on such terms and in such amounts as the general partner deems to be in the best interests of your partnership. Your partnership may not incur mortgage financing which amortizes over more than a thirty-year period or which requires a balloon payment prior to the earlier of (1) ten years from the date your partnership acquires a property or (2) two years subsequent to the anticipated holding period of the property, but no sooner than seven years from the date your partnership acquired the property, except with respect to financing representing, in the aggregate, 25% or less than the total purchase price of the properties acquired or any financing from an alterna- tive financing source with a commitment to allow refinancing to extend the maturity of any such balloon payment.
Review of Investor Lists Your partnership's agreement of partnership entitles a Each OP Unitholder has the right, upon written demand limited partner to inspect your partnership's books and with a statement of the purpose of such demand and at records, your partnership agreement, any separate such OP Unitholder's own expense, to obtain a current certificates of limited partnership and copies of each list of the name and last known business, residence or appraisal of partnership property. Your partnership is mailing address of the general partner and each other required to furnish any limited partner with a copy of OP Unitholder. the list of partners' names and addresses and number of units owned by them upon payment of the costs of collection, duplication and mailing.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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
S-61 2937 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Your partnership limits the liability of the general Notwithstanding anything to the contrary set forth in partner and its affiliates to your partnership or the the AIMCO Operating Partnership Agreement, the general limited partners for acts undertaken on behalf of your partner is not liable to the AIMCO Operating partnership only to the extent that they are Partnership for losses sustained, liabilities incurred indemnified by your partnership for actions taken where or benefits not derived as a result of errors in the general partner determined, in good faith, that the judgment or mistakes of fact or law of any act or course of conduct which caused the loss or liability omission if the general partner acted in good faith. was in or not opposed to the best interests of your The AIMCO Operating Partnership Agreement provides for partnership, provided that such loss, damage, indemnification of AIMCO, or any director or officer of liability, cost or expense was not the result of AIMCO (in its capacity as the previous general partner negligence or misconduct by such party. The general of the AIMCO Operating Partnership), the general partner and its affiliates are entitled to partner, any officer or director of general partner or indemnification by your partnership against any the AIMCO Operating Partnership and such other persons liability, loss or damage incurred by them in as the general partner may designate from and against connection with the business of your partnership if the all losses, claims, damages, liabilities, joint or general partner determined, in good faith, that the several, expenses (including legal fees), fines, course of conduct which caused the loss or liability settlements and other amounts incurred in connection was in or not opposed to the best interests of your with any actions relating to the operations of the partnership, provided that such loss, damage, AIMCO Operating Partnership, as set forth in the AIMCO liability, cost or expense was not the result of Operating Partnership Agreement. The Delaware Limited negligence or misconduct by such party. Such indemnity Partnership Act provides that subject to the standards will be paid only from the assets of your partnership and restrictions, if any, set forth in its partnership and not from the assets of the limited partners. agreement, a limited partnership may, and shall have Notwithstanding any other provision to the contrary, the power to, indemnify and hold harmless any partner the general partner and its affiliates will be liable or other person from and against any and all claims and and will not be entitled to indemnity for any loss, demands whatsoever. It is the position of the damage or cost resulting from violations of federal or Securities and Exchange Commission that indemnification state securities laws in connection with the units of directors and officers for liabilities arising under unless there is a successful adjudication of the merits the Securities Act is against public policy and is of each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities laws violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove any has exclusive management power over the business and general partner and elect a successor general partner affairs of the AIMCO Operating Partnership. The general upon a vote of a majority in interest of the limited partner may not be removed as general partner of the partners. With the consent of all the other general AIMCO Operating Partnership by the OP Unitholders with partners and of a majority in interest of the limited or without cause. Under the AIMCO Operating Partnership partners, any general partner may at any time designate Agreement, the general partner may, in its sole a successor or additional general partner. discretion, prevent a transferee of an 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 Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of partnership may be With the exception of certain circumstances set forth amended by the general partner without the consent of in the AIMCO Operating Partnership Agreement, whereby the limited partners if such amendment: (1) adds to the the general partner may, without the consent of the OP representation, duties or obliga- Unitholders, amend
S-62 2938 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tions of the general partner or surrenders any right or the AIMCO Operating Partnership Agreement, amendments power granted to the general partner, (2) cures any to the AIMCO Operating Partnership Agreement require ambiguity, corrects or supplements any provisions that the consent of the holders of a majority of the may be inconsistent with any other provision or makes outstanding Common OP Units, excluding AIMCO and any other provision with respect to matters or certain other limited exclusions (a "Majority in questions arising under your partnership's agreement of Interest"). Amendments to the AIMCO Operating limited partnership consistent with the provisions of Partnership Agreement may be proposed by the general your partnership's agreement of limited partnership, partner or by holders of a Majority in Interest. (3) deletes or adds any provision required by any Following such proposal, the general partner will applicable law and (4) lessens the possibility, in the submit any proposed amendment to the OP Unitholders. general partner's opinion, that your limited The general partner will seek the written consent of partnership units may be considered "plan assets" under the OP Unitholders on the proposed amendment or will the Employee Retirement Income Security Act of 1971, as call a meeting to vote thereon. See "Description of OP amended. No amendment may be adopted unless it (1) is Units -- Amendment of the AIMCO Operating Partnership for the benefit of or not adverse to the interests of Agreement" in the accompanying Prospectus. the limited partners, (2) is consistent with certain other provisions of your partnership's agreement of limited partnership, (3) does not affect the distribu- tion of cash available for distribution or the allocation of taxable income or tax losses among the limited partners or between the general partner and the limited partners and (4) does not affect the limited liability of the limited partners or the status of your partnership as a partnership for federal income tax purposes. Any other amendment to your partnership's agreement of limited partnership may not be made without the consent of a majority in interest of the limited partners.
Compensation and Fees Your general partner receives no fee for its services The general partner does not receive compensation for as general partner of your partnership but may receive its services as general partner of the AIMCO Operating reimbursement for expenses incurred in such capacity. 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 Part- nership 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 partnership, a Except for fraud, willful misconduct or gross limited partner is not liable for any of the expenses, negligence, no OP Unitholder has personal liability for liabilities or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution. No limited partner obligations, and liability of the OP Unitholders for is required to lend funds to your partnership, or to the AIMCO Operating Partnership's debts and obligations make any further capital contribution after his initial is generally limited to the amount of their invest- capital contribution is fully paid. Under applicable ment in the AIMCO Operating Partnership. However, the law, a limited partner may be liable to your limitations on the liability of limited partners for partnership to the extent of previous distributions the obligations of a limited partnership have not been made to him if your partnership does not have clearly established in some states. If it were sufficient assets to discharge its liabilities. determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-63 2939 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Under your partnership's agreement of limited Unless otherwise provided for in the relevant partnership each general partner must devote to the partnership agreement, Delaware law generally requires affairs of your partnership such time as may be a general partner of a Delaware limited partnership to necessary for the proper performance of its duties, but adhere to fiduciary duty standards under which it owes is not required to devote its full time to the business its limited partners the highest duties of good faith, of your partnership. The general partner of your fairness and loyalty and which generally prohibit such partnership may not possess your partnership's property general partner from taking any action or engaging in or assign rights in specific properties of your any transaction as to which it has a conflict of partnership for other than a partnership purpose. The interest. The AIMCO Operating Partnership Agreement general partner of your partnership has the fiduciary expressly authorizes the general partner to enter into, responsibility for the safekeeping and use of all funds on behalf of the AIMCO Operating Partnership, a right and assets of your partnership, whether or not such of first opportunity arrangement and other conflict funds and assets are in the general partner's avoidance agreements with various affiliates of the possession or control. The general partner may not AIMCO Operating Partnership and the general partner, on employ or permit others to employ such funds or assets such terms as the general partner, in its sole and in any manner except for the exclusive benefit of your absolute discretion, believes are advisable. The AIMCO partnership. 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-64 2940 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of partnership, upon the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning a Operating Partnership Agreement, have voting rights only with majority of the outstanding units, the holders of the Preferred OP respect to certain limited matters the limited partners may, subject Units will have the same voting such as certain amendments and to certain exceptions, amend your rights as holders of the Common OP termination of the AIMCO Operating partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain partnership, dissolve your Units" in the accompanying transactions such as the partnership, remove or elect a Prospectus. So long as any institution of bankruptcy general partner and approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership. law or by the AIMCO Operating its interest in the AIMCO Operating Partnership Agreement, the Partnership or the admission of a A general partner may cause the affirmative vote or consent of successor general partner. dissolution of your partnership by holders of at least 50% of the retiring. Your partnership may be outstanding Preferred OP Units will Under the AIMCO Operating Partner- continued by the remaining general be necessary for effecting any ship Agreement, the general partner partners within 30 days after the amendment of any of the provisions has the power to effect the retirement of a general partner. of the Partnership Unit Desig- acquisition, sale, transfer, nation of the Preferred OP Units exchange or other disposition of that materially and adversely any assets of the AIMCO Operating affects the rights or preferences Partnership (including, but not of the holders of the Preferred OP limited to, the exercise or grant Units. The creation or issuance of of any conversion, option, any class or series of partnership privilege or subscription right or units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to con-
S-65 2941 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tinue 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Cash Available For $ per Preferred OP Unit; tribute quarterly all, or such Distribution are to be made provided, however, that at any time portion as the general partner may quarterly, within 60 days after the and from time to time on or after in its sole and absolute discretion close of each quarter. The the fifth anniversary of the issue determine, of Available Cash (as distributions payable to the date of the Preferred OP Units, the defined in the AIMCO Operating partners are not fixed in amount AIMCO Operating Partnership may Partnership Agreement) generated by and depend upon the operating adjust the annual distribution rate the AIMCO Operating Partnership results and net sales or on the Preferred OP Units to the during such quarter to the general refinancing proceeds available from lower of (i) % plus the annual partner, the special limited the disposition of your interest rate then applicable to partner and the holders of Common partnership's assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re-
S-66 2942 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS deemed, purchased or otherwise "Description of OP acquired for consideration, nor Units -- Distributions" in the shall any other cash or other accompanying Prospectus. property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person by a written Preferred OP Units and the OP Units. The AIMCO Operating Part- assignment, duly executed by the Preferred OP Units are not listed nership Agreement restricts the assignor of the units, the terms of on any securities exchange. The transferability of the OP Units. which are not contrary to any terms Preferred OP Units are subject to Until the expiration of one year of your partnership agreement, pro- restrictions on transfer as set from the date on which an OP vided that no limited partner may forth in the AIMCO Operating Unitholder acquired OP Units, transfer any units (1) if your Partnership Agreement. subject to certain exceptions, such partnership's counsel is of the OP Unitholder may not transfer all opinion that such a transfer would Pursuant to the AIMCO Operating or any portion of its OP Units to be in violation of any applicable Partnership Agreement, until the any transferee without the consent securities laws or (2) if the expiration of one year from the of the general partner, which transferor or the transferee would date on which a holder of Preferred consent may be withheld in its sole hold less than five units, or in OP Units acquired Preferred OP and absolute discretion. After the certain other circumstances, less Units, subject to certain expiration of one year, such OP than two units, provided that exceptions, such holder of Unitholder has the right to transfers by gift or inheritance, Preferred OP Units may not transfer transfer all or any portion of its intrafamily transfers, transfers all or any portion of its Pre- OP Units to any person, subject to resulting from family disso- ferred OP Units to any transferee the satisfaction of certain lutions and transfers to affiliates without the consent of the general conditions specified in the AIMCO are not subject to this partner, which consent may be Operating Partnership Agreement, requirement. Such transferee may be withheld in its sole and absolute including the general partner's substituted as a limited partner discretion. After the expiration of right of first refusal. See if, in addition to the above re- one year, such holders of Preferred "Description of OP Units -- quirements: (1) a written OP Units has the right to transfer Transfers and Withdrawals" in the assignment is duly executed and all or any portion of its Preferred accompanying Prospectus. acknowledged by the assignor and OP Units to any person, subject to assignee grants the assignee the the satisfaction of certain After the first anniversary of right to succeed to the assignor's conditions specified in the AIMCO becoming a holder of Common OP interest as a substitute limited Operating Partnership Agreement, Units, an OP Unitholder has the partner, (2) the assignee pays all including the general partner's right, subject to the terms and reasonable legal fees and filing right of first refusal. conditions of the AIMCO Operating costs incurred by your partnership, Partnership Agreement, to require and (3) the assignor and assignee After a one-year holding period, a the AIMCO Operating Partnership to have complied with such other holder may redeem Preferred OP redeem all or a portion of the conditions as set forth in your Units and receive in exchange Common OP Units held by such party partnership's agreement of limited therefor, at the AIMCO Operating in exchange for a cash amount based partnership. Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 2943 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 2944 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 2945 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 2946 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 2947 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 2948 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 2949 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 2950 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 2951 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. Your general partner received fees and reimbursements totaling $256,000 in 1996, $280,000 in 1997 and $111,000 for the first six months of 1998. The property manager received management fees of $171,000 in 1996, $160,000 and $79,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 2952 YOUR PARTNERSHIP GENERAL HCW Pension Real Estate Fund Limited Partnership was organized on April 30, 1984, under the laws of the State of Massachusetts. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of 269 unit apartment complex in Carbondale, Illinois and a 102,000 sq. ft. office building in Kansas city, Missouri. The general partner of your partnership is HCW General Partner Ltd. The general partner of HCW General Partnership Ltd. is IH, Inc., which is a majority-owned subsidiary of AIMCO, is the general partner of your partnership. The property manager, which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 15,698 units of limited partnership interest issued and outstanding, which were held of record by 1,799 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Reports on Form 8-K, dated September 23, 1998 and October 1, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that sales of properties were anticipated to be made between seven and twelve years after acquisition. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the amount of appreciation in value, if any, expected to be realized from, and the anticipated risks and advantages of, continued ownership. Under your partnership's agreement of limited partnership, the term of the partnership will continue until October 31, 2024, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 2953 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property has been managed by an entity which is now a majority-owned subsidiary of AIMCO. Pursuant to the management agreements between the property managers and your partnership, the property managers operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property managers also are responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership is not liable, responsible or accountable for any act or omission so long as such action or omission was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of fraud, bad faith, negligence or misconduct. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any liability, loss or damage incurred by them in connection with the business of your partnership, provided that the activities of the general partner did not constitute fraud, bad faith, negligence or misconduct. Such indemnity will be paid only from the assets of your partnership and not from the assets of the limited partners. Notwithstanding any other provision to the contrary, the general partner and its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-78 2954 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $28.71 January 1, 1996 - December 31, 1996......................... 18.73 January 1, 1997 - December 31, 1997......................... 18.73 January 1, 1998 - June 30, 1998............................. --
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 2.5% interest in your partnership, including a 2% interest held by your general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership receives no fees from the partnership but it may receive reimbursement for expenses in respect of its capacity as general partner of your partnership. In addition, a majority-owned subsidiaries of AIMCO manages the property of your partnership. Your partnership has historically paid the fees as described in the following table:
PROPERTY ASSET REIMBURSEMENT MANAGEMENT MANAGEMENT FOR SERVICES YEAR FEES FEES OF AFFILIATES - ---- ---------- ---------- ------------- 1996................................... $171,000 $136,000 $120,000 1997................................... 160,000 136,000 144,000 1998 (through June 30)................. 79,000 67,000 44,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-79 2955 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of HCW Pension Real Estate Federal Limited Partnership incorporated by reference in HCW Pension Real Estate Federal Limited Partnership Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-80 2956 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 2957 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 2958 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 2959 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine...................... Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez................... Vice Chairman, President and Director Thomas W. Toomey..................... Executive Vice President -- Finance and Administration Joel F. Bonder....................... Executive Vice President, General Counsel and Secretary Patrick J. Foye...................... Executive Vice President Robert Ty Howard..................... Executive Vice President -- Ancillary Services Steven D. Ira........................ Executive Vice President and Co-Founder David L. Williams.................... Executive Vice President -- Property Operations Harry G. Alcock...................... Senior Vice President -- Acquisitions Troy D. Butts........................ Senior Vice President and Chief Financial Officer Richard S. Ellwood................... Director J. Landis Martin..................... Director Thomas L. Rhodes..................... Director John D. Smith........................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 2960
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 2961
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 2962
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 2963
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2964 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 2965 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF INVESTORS FIRST-STAGED EQUITY IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties and one commercial complex to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 2966 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with Your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Investors First-Staged Equity, L.P................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-52 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-54 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75
i 2967
PAGE ---- YOUR PARTNERSHIP............................... S-76 General...................................... S-76 Additional Information Concerning Your Partnership................................ S-76 Term of the Partnership...................... S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-76 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-77 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2968 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Investors First-Staged Equity. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in VMS Realty Partners, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 2969 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 2970 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has made no distributions since at least January 1, 1995. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $ on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in three properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 2971 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $10.00 per unit to $50.00 per unit from January 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 2972 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender you own a minimum of four units if you then own any units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 2973 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 2974 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 2975 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $10.00 per unit to $50.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 2976 and manages three properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 2977 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 2978 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 2979 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 1% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in S-12 2980 significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 2981 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. S-14 2982 Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 2983 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 2984 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $10.00 to $50.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 2985 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to no fees as compensation but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $116,000 for the first six months of 1998. The property manager received management fees of $225,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Investors First-Staged Equity, L.P. was organized on May 8, 1985, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of a 328-unit residential apartment complex, a 198-unit residential apartment complex and a S-18 2986 15.4 acre commercial complex. The general partner of your partnership is VMS Realty Partners, which is a majority-owned subsidiary of AIMCO. The property manager is a majority-owned subsidiary of AIMCO. As of December 31, 1997, there were 16,267 units of limited partnership interest issued and outstanding, which were held of record by 3,015 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 2987 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 2988
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 2989 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 2990
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 2991 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 2992 SUMMARY FINANCIAL INFORMATION OF INVESTORS FIRST-STAGED EQUITY The summary financial information of Investors First-Staged Equity for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Investors First-Staged Equity for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. INVESTORS FIRST-STAGED EQUITY
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------- -------------------------------- 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues................................ $ 4,176 $ 3,707 $ 9,835 $ 7,363 $ 10,820 Net Income (Loss)............................. (106) (373) 1,102 (2,118) 664 Net Income (Loss) per limited partnership unit........................................ (6.45) (22.70) 67.07 (128.91) 38.40 Distributions per limited partnership unit.... -- -- -- -- --
JUNE 30, DECEMBER 31, -------------------- -------------------------------- 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................................ $ 22,838 $ 23,898 $ 23,410 $ 26,912 $ 28,626 Total Assets.................................. 28,396 29,789 29,029 30,816 33,245 Notes Payable................................. 45,194 46,722 45,930 46,715 45,922 Partners' Capital (Deficit)................... (18,054) (19,423) (17,948) (19,050) (16,932)
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING INVESTORS FIRST-STAGED PARTNERSHIP EQUITY ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $ 0.00 $0.00
S-25 2993 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $10.00 per unit to $50.00 per unit from January 1, 1997 to September 30, 1998. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to S-26 2994 remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages three properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your S-27 2995 partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. No distributions with respect to your units have occurred since at least January 1, 1995. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your S-28 2996 partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Strategic Realty Advisors, Inc., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 2997 We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount S-30 2998 from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 2999 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 3000 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of five units (except for transfer by gift, inheritance, intra-family transfers, family dissolutions and transfers to affiliates, and except for transfers of all of a limited partner's units). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 3001 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 3002 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 3003 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 3004 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 3005 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 3006 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 3007 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 3008 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 5.00 units in your partnership have been transferred during the preceding twelve months (representing approximately 0.03% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 3009 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 3010 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 3011 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 3012 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 3013 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 3014 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Rivercrest Village Apartments............... $ % $ Richardson Highland Apartments.............. Serramonte Plaza Office Center..............
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 3015 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 3016 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. No distributions have been made with respect to your units, since at least January 1, 1995. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method S-49 3017 described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $10.00 to 50.00 Estimated liquidation proceeds............................ $
S-50 3018 Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 12.50 units (representing less than 0.08% of the total outstanding units) was transferred (excluding units transferred to AIMCO and its affiliates. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. INVESTORS FIRST-STAGED EQUITY REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ----------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ -- $ -- Second Quarter............................................ 50.00 50.00 First Quarter............................................. -- -- Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ -- -- Third Quarter............................................. 10.00 10.00 Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available Fiscal Year Ended December 31, 1995: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. S-51 3019 Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. The Richardson Highland Apartments was appraised in January, 1998 by an independent, third party appraiser, Joseph J. Blake Associates (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $21,500,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for the two other properties in the past three years. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. S-52 3020 Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and S-53 3021 your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. S-54 3022 ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-55 3023 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 3024 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Operating Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of 2025. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to engage in the The purpose of the AIMCO Operating Partnership is to business of owning, operating and disposing of conduct any business that may be lawfully conducted by commercial and residential properties. Your partnership a limited partnership organized pursuant to the may also do each and everything necessary, suitable or Delaware Revised Uniform Limited Partnership Act (as proper for the accomplishment of any of your amended from time to time, or any successor to such partnership's purposes. statute) (the "Delaware Limited Partnership 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.
S-57 3025 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not less than five units for cash time to the limited partners and to other persons, and and notes to selected persons who fulfill the to admit such other persons as additional limited requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital of limited partnership. The capital contribution need contributions as may be established by the general not be equal for all limited partners and no action or partner in its sole discretion. The net capital consent is required in connection with the admission of contribution need not be equal for all OP Unitholders. any additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner may, in its funds or other assets to its subsidiaries or other discretion, advance monies to your partnership for use persons in which it has an equity investment, and such in its operations. The aggregate amount of such persons may borrow funds from the AIMCO Operating advances will be an obligation of your partnership to Partnership, on terms and conditions established in the the general partner and will be repaid to the general sole and absolute discretion of the general partner. To partner according to the terms of the advances out of the extent consistent with the business purpose of the the gross receipts of your partnership with interest at AIMCO Operating Partnership and the permitted a rate that will not exceed the rate charged by activities of the general partner, the AIMCO Operating unaffiliated banks on comparable loans for the same Partnership may transfer assets to joint ventures, purpose in that locality, nor will such interest, limited liability companies, partnerships, charges or fees exceed the rate then available to the corporations, business trusts or other business general partner from its primary commercial banks on entities in which it is or thereby becomes a unsecured loans having a similar maturity. The participant upon such terms and subject to such principal amount of any loan from the general partner conditions consistent with the AIMCO Operating Part- and encumbering your partnership's properties must be nership Agreement and applicable law as the general paid over a period of not less than forty-eight months, partner, in its sole and absolute discretion, believes and not more than 50% of the principal amount of which to be advisable. Except as expressly permitted by the is scheduled to be paid during first twenty-four AIMCO Operating Partnership Agreement, neither the months. An "all-inclusive" or "wrap-around" note and general partner nor any of its affiliates may sell, deed of trust may not be used to finance the purchase transfer or convey any property to the AIMCO Operating of a property unless certain conditions are satisfied. Partnership, directly or indirectly, except pursuant to No loans or guarantees of a loan may be made by your transactions that are determined by the general partner partnership to the general partner or its affiliates. in good faith to be fair and reasonable. Subject to certain exceptions, your partnership may not sell or lease property to the general partner. In addition, neither the general partner nor its affiliates has any exclusive right to sell any of the properties for your partnership. Your partnership may invest in joint ventures with the general partner or its affiliates which own and operate a particular property, provided that, your partnership acquires a right of first refusal to buy the property and a controlling interest in such other general partnership or venture. No services other than those set forth in your partnership's agreement of limited partnership may be performed by the general partner or its affiliates. Any such arrangements must provide that: (1) the compensation, price or fees must be comparable and competitive with the compensation, price or fee of any other person who is rendering comparable service or selling or leasing comparable goods which could reasonably be made available to your partnership and will be on competitive terms, (2) the fees and other terms of the contract must be fully disclosed, (3) the general partner or its affiliates must be previously engaged in the business
S-58 3026 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP of rendering such services or selling or leasing such goods, independently of your partnership and as an ordinary and ongoing business, and (4) all services or goods for which the general partner or its affiliates are to receive compensation is embodied in a written contract which precisely describes the services to be rendered and all compensation to be paid, which contract may only be modified by a vote of the majority of the limited partners. Such contracts will contain a clause allowing termination without penalty on sixty days notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow or raise monies for the purposes of your restrictions on borrowings, and the general partner has partnership from any person, issue evidences of full power and authority to borrow money on behalf of indebtedness and secure repayment by pledging, the AIMCO Operating Partnership. The AIMCO Operating mortgaging or granting a security interest in all or Partnership has credit agreements that restrict, among part of your partnership's assets. In connection with other things, its ability to incur indebtedness. See the purchase of any properties by your partnership, the "Risk Factors -- Risks of Significant Indebtedness" in general partner will require that any balloon payment the accompanying Prospectus. required pursuant to the terms of any permanent mortgage financing, including all-inclusive and wrap- around loans and interest only loans, incurred by your partnership in connection with such purchase will not be due and payable sooner than the earlier of: (1) ten years from the date your partnership acquires the property or (2) two years beyond the anticipated holding period for such property, provided in such case that a balloon payment does not become due sooner than seven years from the date your partnership acquires the property and should normally be amortized over not more than 30 years.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, the general partner will provide to the with a statement of the purpose of such demand and at limited partners, upon request and at no cost, a such OP Unitholder's own expense, to obtain a current complete current list of the names, addresses and list of the name and last known business, residence or number of units owned by each of the limited partners mailing address of the general partner and each other of your partnership. OP Unitholder.
Management Control Under your partnership's agreement of limited All management powers over the business and affairs of partnership, the general partner has full, exclusive the AIMCO Operating Partnership are vested in AIMCO-GP, and complete authority and discretion in the management Inc., which is the general partner. No OP Unitholder and control of the business of your partnership and has any right to participate in or exercise control or makes all decisions affecting the business of your management power over the business and affairs of the partnership. No limited partner may participate in the AIMCO Operating Partnership. The OP Unitholders have management nor have any control over your partnership's the right to vote on certain matters described under business or transact any business for your partnership "Comparison of Ownership of Your Units and AIMCO OP nor may any limited partner have any power to sign for Units -- Voting Rights" below. The general partner may or bind your partnership. This does not apply to the not be removed by the OP Unitholders with or without general partner if it is also a limited partner. 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
S-59 3027 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to be partner, any officer or director of general partner or indemnified by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or nonperformance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such at or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (no limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding the foregoing, neither the Act of 1933. general partner nor any officer, director, employee, agent, subsidiary or assign of the general partner or its affiliates are indemnified from any liability, loss or damage incurred by them in connection with (1) any claim or settlement involving allegations that the Securities Act of 1933 was violated by the general partner or by any such other person or entity unless: (i) the general partner or other persons or entities seeking indemnification are successful in defending such action and (ii) such indemnification is specifically approved by a court of law which is advised as to the current position of both the Securities and Exchange Commission and the California Commissioner of Corporation regarding indemnification for violations of securities laws; or (2) any liability imposed by law, including liability for fraud, bad faith or negligence.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and appoint a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning a majority of the partner may not be removed as general partner of the units. No limited partner may substitute a transferee AIMCO Operating Partnership by the OP Unitholders with of his units in such limited partner's place without or without cause. Under the AIMCO Operating Partnership the consent of the general partner which may be Agreement, the general partner may, in its sole withheld at the sole discretion of the general partner. discretion, prevent a transferee of an 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 Partner-
S-60 3028 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representations, duties or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, for the benefit of the Partnership Agreement require the consent of the limited partners; (2) cures any ambiguity, corrects or holders of a majority of the outstanding Common OP supplements any provision which may be inconsistent Units, excluding AIMCO and certain other limited with any other provision or make any other provisions exclusions (a "Majority in Interest"). Amendments to with respect to matters or questions arising under your the AIMCO Operating Partnership Agreement may be partnership's agreement of limited partnership which proposed by the general partner or by holders of a will not be inconsistent with the provisions of your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership; or (3) general partner will submit any proposed amendment to deletes or adds any provision required by applicable the OP Unitholders. The general partner will seek the law. No amendment may be adopted unless such adoption: written consent of the OP Unitholders on the proposed (1) is for the benefit or not adverse to the interests amendment or will call a meeting to vote thereon. See of the limited partners; (2) does not alter the "Description of OP Units -- Amendment of the AIMCO interest of the general partner or limited partners in Operating Partnership Agreement" in the accompanying profits, losses or cash distributions of your Prospectus. partnership; and (3) does not, in the opinion of counsel to your partnership, alter the limited liability of the limited partners or the status of your partnership for federal income tax purposes. Other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning a majority of the units. No amendment may be made to your partnership's agreement of limited partnership that: (1) alters the rights of the general partner to receive compensation or other distributions or expands the obligations or liabilities of the general partner without its consent; (2) converts a limited partner to a general partner except with such partner's consent; (3) modifies the limited liability of a limited partner; or (4) increases or reduces the percentage of units required to perform any act without the approval of limited partners owning at least the percentage of units which is being changed.
Compensation and Fees Under your partnership's partnership agreement, your The general partner does not receive compensation for general partner is entitled to no fees as compensation its services as general partner of the AIMCO Operating but may receive reimbursement for expenses incurred in Partnership. However, the general partner is entitled such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-61 3029 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities or obligations of your partnership the AIMCO Operating Partnership's debts and beyond his capital contributions. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 partnerships' agreement of limited Unless otherwise provided for in the relevant partnership, the general partner must devote such time partnership agreement, Delaware law generally requires to your partnership as it within its discretion deems a general partner of a Delaware limited partnership to necessary in order to conduct your partnership's adhere to fiduciary duty standards under which it owes business. The general partner has a fiduciary respon- its limited partners the highest duties of good faith, sibility for the safekeeping and use of all funds and fairness and loyalty and which generally prohibit such assets of your partnership, whether or not in its general partner from taking any action or engaging in immediate possession or control, and the general any transaction as to which it has a conflict of partner may not employ or permit another to employ such interest. The AIMCO Operating Partnership Agreement funds or assets in any manner except for the exclusive expressly authorizes the general partner to enter into, benefit of your partnership. The general partner must on behalf of the AIMCO Operating Partnership, a right manage and control the affairs of your partnership to of first opportunity arrangement and other conflict the best of its ability and use its best efforts to avoidance agreements with various affiliates of the carry out the purposes of your partnership. In AIMCO Operating Partnership and the general partner, on addition, the general partner may not commingle the such terms as the general partner, in its sole and funds of your partnership with the funds of any other absolute discretion, believes are advisable. The AIMCO person. The general partner may employ suitable agents, Operating Partnership Agreement expressly limits the custodians, accountants, architects and engineers but liability of the general partner by providing that the no such employment will absolve the general partner of general partner, and its officers and directors will its responsibilities and obligations to manage and not be liable or accountable in damages to the AIMCO control the business and property of your partnership. Operating Partnership, the limited partners or All of the partners may engage in any business or assignees for errors in judgment or mistakes of fact or profession and may possess any interest in other law or of any act or omission if the general partner or businesses and real estate ventures of every nature and such director or officer acted in good faith. See description, which may be in competition with the "Description of OP Units -- Fiduciary Responsibilities" business activities of your partnership, independently in the accompanying Prospectus. or with others, including but not limited to the ownership, financing, leasing, operation, management, syndication, brokerage and development of real property and business entities; neither your partnership nor the partners have any right under your partnership's agreement of limited partnership in and to any interest in any such business, profession or independent ventures or to the income of profits derived therefrom.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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.
S-62 3030 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the units, the the holders of the Preferred OP respect to certain limited matters limited partners may: (1) dis- Units will have the same voting such as certain amendments and solve your partnership; (2) remove rights as holders of the Common termination of the AIMCO the
S-63 3031 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS general partner; (3) amend your OP Units. See "Description of OP Operating Partnership Agreement and partnership's agreement of limited Units" in the accompanying certain transactions such as the partnership, subject to certain Prospectus. So long as any institution of bankruptcy exceptions; (4) appoint a successor Preferred OP Units are outstand- proceedings, an assignment for the general partner; and (5) approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale of all or or consent of partners required by transfers by the general partner of substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- being removed from office, legally be necessary for effecting any ship Agreement, the general partner incapacitated or bankrupt. Your amendment of any of the provisions has the power to effect the partnership will not dissolve but of the Partnership Unit Desig- acquisition, sale, transfer, will be continued by the limited nation of the Preferred OP Units exchange or other disposition of partners if the limited partners that materially and adversely any assets of the AIMCO Operating appoint one or more limited affects the rights or preferences Partnership (including, but not partners, or such other person, to of the holders of the Preferred OP limited to, the exercise or grant become general partner within 60 Units. The creation or issuance of of any conversion, option, days following the general any class or series of partnership privilege or subscription right or partner's removal, incapacity or units, including, without any other right available in bankruptcy. limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Operating Cash $ per Preferred OP Unit; tribute quarterly all, or such Flow will be made within 60 days provided, however, that at any time portion as the general partner may following the end of each calendar and from time to time on or after in its sole and absolute discretion quarter. The distributions paya- the fifth anniversary of the issue determine, of Available Cash (as ble to the partners are not fixed date of the Preferred OP Units, the defined in the AIMCO Operating in amount and depend upon the AIMCO Operating Partnership may Partnership Agreement) generated by operating results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. partner and the holders
S-64 3032 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest rate then applicable to of Common OP Units on the record U.S. Treasury notes with a maturity date established by the general of five years, and (ii) the annual partner with respect to such dividend rate on the most recently quarter, in accordance with their issued AIMCO non-convertible respective interests in the AIMCO preferred stock which ranks on a Operating Partnership on such parity with its Class H Cumu- record date. Holders of any other lative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- transfer is not for any fractional Preferred OP Units are not listed nership Agreement restricts the part of a unit; (2) the transfer is on any securities exchange. The transferability of the OP Units. not less than five units, except Preferred OP Units are subject to Until the expiration of one year for transfer by gift, inheritance, restrictions on transfer as set from the date on which an OP intrafamily transfers, family forth in the AIMCO Operating Unitholder acquired OP Units, dissolutions and transfers to Partnership Agreement. subject to certain exceptions, such affiliates, and except for OP Unitholder may not transfer all transfers of all of a limited Pursuant to the AIMCO Operating or any portion of its OP Units to partner's units; or (3) the limited Partnership Agreement, until the any transferee without the consent partner does not make any transfer expiration of one year from the of the general partner, which of his units if after such transfer date on which a holder of Preferred consent may be withheld in its sole he owns less than five units, ex- OP Units acquired Preferred OP and absolute discretion. After the cept for transfers of all of a Units, subject to certain expiration of one year, such OP limited partner's units. In exceptions, such holder of Unitholder has the right to addition, units cannot be assigned Preferred OP Units may not transfer transfer all or any portion of its or transferred to a minor or in- all or any portion of its Pre- OP Units to any person, subject to competent. A transferee may become ferred OP Units to any transferee the satisfaction of cer- a substitute limited partner if: without (1) the as-
S-65 3033 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS signee indicates his intent to the consent of the general partner, tain conditions specified in the become a substitute limited partner which consent may be withheld in AIMCO Operating Partnership with a written instrument or its sole and absolute discretion. Agreement, including the general assignment; (2) the general After the expiration of one year, partner's right of first refusal. consents in writing, which consent such holders of Preferred OP Units See "Description of OP Units -- may be withheld at the sole has the right to transfer all or Transfers and Withdrawals" in the discretion of the general partner; any portion of its Preferred OP accompanying Prospectus. (3) the assignment instrument is Units to any person, subject to the reasonably satisfactory to the satisfaction of certain conditions After the first anniversary of general partner; (4) the assignor specified in the AIMCO Operating becoming a holder of Common OP and the assignee execute any Partnership Agreement, including Units, an OP Unitholder has the necessary instruments as required the general partner's right of right, subject to the terms and by the general partner to first refusal. conditions of the AIMCO Operating effectuate the transfer; (5) the Partnership Agreement, to require assignee provides a written After a one-year holding period, a the AIMCO Operating Partnership to acceptance and adoption of your holder may redeem Preferred OP redeem all or a portion of the partnership's agreement of limited Units and receive in exchange Common OP Units held by such party partnership; (6) the assignee exe- therefor, at the AIMCO Operating in exchange for a cash amount based cutes a power of attorney; (7) the Partnership's option, (i) subject on the value of shares of Class A assignee pays all reasonable to the terms of any Senior Units, Common Stock. See "Description of expenses connected with such cash in an amount equal to the OP Units -- Redemption Rights" in transfer; (8) the transfer does not Liquidation Preference of the the accompanying Prospectus. Upon violate any applicable securities Preferred OP Units tendered for receipt of a notice of redemption, laws; and (9) the transfer of units redemption, (ii) a number of shares the AIMCO Operating Partnership does not terminate your partnership of Class I Cumulative Preferred may, in its sole and absolute for Federal tax purposes. Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-66 3034 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 3035 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 3036 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 3037 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 3038 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 3039 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 3040 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 3041 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 3042 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $153,000 for 1996, $793,000 for 1997 and $116,000 for the first six months of 1998. The property manager received management fees of $385,000 for 1996, $390,000 for 1997 and $225,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-75 3043 YOUR PARTNERSHIP GENERAL Investors First-Staged Equity was organized on May 8, 1995, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of a 328 unit residential apartment complex, a 198 unit residential apartment complex and a 15.4 acre commercial complex. The general partner of your partnership is VMS Realty Partners, which is a majority-owned subsidiary of AIMCO. The manager of the properties is a majority-owned subsidiary of AIMCO. As of December 31, 1997, there were 16,267 units of limited partnership interest issued and outstanding, which were held of record by 3,015 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, as amended, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2025, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. S-76 3044 Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership does not limit the liability of the general partner or its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership indemnifies the general partner and any of its affiliates, and holds them or any persons who control them harmless from any loss suffered or sustained by them, and the limited partners will make no claim against the general partner, or any of its affiliates, for any act done by them on behalf of your partnership or for any failure to act, unless any such act or failure to act is the result of negligence, misconduct or breach of any fiduciary duty imposed on the general partner by law. No general partner or any of its affiliates is entitled to indemnification from liability, loss or damage incurred in connection with any claim or settlement involving a violation of state or federal securities laws unless: (1) the general partner or its affiliate is successful in defending the action and (2) such indemnification is approved by a court of law. In addition, the general partner or its affiliate is not indemnified for any liability imposed by law, including liability for fraud, bad faith or negligence. Any indemnification to the general partner or its affiliates will be recoverable from your partnership's assets and not from the limited partners. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS There have been no distributions since at least January 1, 1996. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 1% interest in your partnership, held by your general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership receives no compensation but may receive reimbursement for expenses in respect of its capacity as general partner of your partnership. Your general partnership was S-77 3045 reimbursed for expenses in respect of its capacity as general partner of your partnership as described in the following table:
YEAR REIMBURSEMENTS - ---- -------------- 1994........................................................ $249,000 1995........................................................ 242,000 1996........................................................ 153,000 1997........................................................ 793,000 1998 (through June 30)...................................... 116,000
In addition, majority-owned subsidiaries of AIMCO manage the properties of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------------ 1994........................................................ $414,000 1995........................................................ 424,000 1996........................................................ 385,000 1997........................................................ 390,000 1998 (through June 30)...................................... 225,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The S-78 3046 financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Investors First-Staged Equity L.P. appearing in Investors First-Staged Equity L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 3047 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3048 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the A-2 3049 Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3050 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION - ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3051
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3052
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3053
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3054
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3055 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3056 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF JOHNSTOWN/CONSOLIDATED INCOME PARTNERS IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, an affiliate estimated the net liquidation value of your units to be $89.27 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in one apartment property, one storage center and one office building to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3057 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units.. S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Johnstown/ Consolidated Income Partners............... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-54 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 3058
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3059 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Johnstown/Consolidated Income Partners. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3060 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3061 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $7.69 per unit for the six months ended June 30, 1998, the same amount distributed for calendar 1997. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3062 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $31.00 per unit to $170.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $89.27 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 3063 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3064 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3065 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3066 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $89.27 per unit. However, we do not believe that this valuation represents the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $31.00 per unit to $170.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 3067 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages three properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 3068 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 3069 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 3070 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 20.9% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 3071 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 3072 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 3073 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 3074 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 3075 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $31.00 to $170.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 3076 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual partnership management fee as calculated as set forth in the partnership's agreement of limited partnership for its services as general partner and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $47,000 for the first six months of 1998. The property manager received management fees of $58,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Johnstown/Consolidated Income Partners was organized on January 9, 1986, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of a 158-unit residential apartment complex in Independence, Missouri, a 64,240 square-foot storage center in Davie, Florida and a 79,854 square-foot office building in Atlanta, Georgia. The general partner of your partnership is Concap Equities, Inc., which is a majority-owned subsidiary of AIMCO. Your property manager is a majority-owned subsidiary of AIMCO. As of December 31, 1997, there were 128,810 units of limited partnership interest issued and outstanding, which were held of record by 2,549 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information S-18 3077 about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3078 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3079
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3080 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3081
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3082 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3083 SUMMARY FINANCIAL INFORMATION OF JOHNSTOWN/CONSOLIDATED INCOME PARTNERS The summary financial information of Johnstown/Consolidated Income Partners for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Johnstown/Consolidated Income Partners for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ----------------------------- 1998 1997 1997 1996 1995 ------ ------- ------- ------- ------- ) (IN THOUSANDS, EXCEPT UNIT DATA OPERATING DATA: Total Revenues.............................................. $1,476 $ 1,616 $ 2,725 $ 2,260 $ 2,462 Net Income (Loss)........................................... 470 587 541 122 350 Net Income (Loss) per limited partnership unit.............. 3.61 4.51 4.16 (0.84) 2.69 Distributions per limited partnership unit.................. 7.69 -- 7.69 7.69 7.69
JUNE 30, DECEMBER 31, ----------------- ----------------------------- 1998 1997 1997 1996 1995 ------ ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $7,007 $ 6,777 $ 6,899 $ 6,992 $ 8,204 Total Assets................................................ 9,615 11,102 10,328 10,574 11,111 Notes Payable............................................... 2,325 2,325 2,325 2,325 1,902 Partners' Capital (Deficit)................................. 6,966 8,542 7,546 7,955 9,064
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING JOHNSTOWN/CONSOLIDATED PARTNERSHIP INCOME PARTNERS -------------------------- -------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................. $1.125 $1.85 $7.69 $7.69
S-25 3084 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $31.00 per unit to $170.00 per unit from January 1, 1997 to September 30, 1998. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $59.27 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 3085 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages three properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 3086 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $7.69 per unit, the same amount distributed for calendar 1997 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 3087 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 20.9% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 3088 Previous Tender Offers Prior to the Insignia Merger, a tender offer had been made to acquire units of your partnership. In late 1997, Madison River Properties, L.L.C., then an affiliate of Insignia and now our affiliate, commenced a tender offer pursuant to which it acquired 14,061.5 units (representing approximately 10.9% of the number outstanding) at a cash purchase price of $68 per unit on February 6, 1998. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to S-30 3089 continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-31 3090 The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 3091 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 3092 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 3093 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 3094 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 3095 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 3096 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 3097 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 3098 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 3099 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 3100 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 15,879.00 units in your partnership have been transferred during twelve months ended December 31, 1997 (representing approximately 12.3% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 3101 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 3102 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 3103 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 3104 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 3105 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 3106 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive gross property value as described in the following table:
1997 NET CAPITALIZATION CAPITAL PROPERTY OPERATING INCOME RATE EXPENDITURES -------- ---------------- -------------- -------------- Cedar Brooke Apartments.................. $ % $ Independence, Missouri Florida #11 Mini-Warehouse............... Davie, Florida Phoenix Business Campus.................. Atlanta, Georgia
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and S-48 3107 certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 3108 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Distributions with respect to your units for the six months ended June 30, 1998 were $7.69 (the same amount distributed in 1997). Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 3109 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 3110 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $31.00 to $170.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 43,406.50 units (representing approximately 33.71% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third- party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. JOHNSTOWN/CONSOLIDATED INCOME PARTNERS REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $55.00 $ 65.00 $(c) $(c) Second Quarter.................................. 37.17 69.13 -- -- First Quarter................................... 49.00 74.00 -- -- Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 35.00 65.00 (c) (c) Third Quarter................................... 31.00 96.00 66.00 67.00 Second Quarter.................................. 35.00 72.00 64.00 67.00 First Quarter................................... 35.00 170.00 65.00 74.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 45.00 71.00 68.00 73.00 Third Quarter................................... 17.00 65.00 60.00 65.00 Second Quarter.................................. 35.00 67.00 58.00 67.00 First Quarter................................... 35.00 87.00 65.00 67.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, S-52 3111 trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Cedar Brooke Apartments was appraised in April 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $3,600,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed S-53 3112 with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and S-54 3113 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. S-55 3114 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts S-56 3115 distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 3116 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2017. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' and amended from time to time, or any successor to such unitholders' invested capital by investing, either statute) (the "Delaware Limited Partnership Act"), alone or in association with others, in a diversified provided that such business is to be conducted in a portfolio of non-leveraged or low-leveraged manner that permits AIMCO to be qualified as a REIT, income-producing properties, (2) provide monthly cash unless AIMCO ceases to qualify as a REIT. The AIMCO distributions generated by the properties, the mort- Operating Partnership is authorized to perform any and gage loans and the mortgage backed securities and the all acts for the furtherance of the purposes and like, (3) provide gains through potential appreciation business of the AIMCO Operating Partnership, provided of the properties and investments in mortgage loans that the AIMCO Operating Partnership may not take, or which may provide your partnership with a participation refrain from taking, any action which, in the judgment interest therein, and (4) diversify your partnership's of its general partner could (i) adversely affect the investments. Subject to restrictions contained in your ability of AIMCO to continue to qualify as a REIT, (ii) partnership's agreement of limited partnership, your subject AIMCO to certain income and excise taxes, or partnership may perform all acts necessary, advisable (iii) violate any law or regulation of any governmental or convenient to the business of your partnership body or agency (unless such action, or inaction, is including borrowing money and creating liens. 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.
S-58 3117 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 1,200,400 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not purchase or lease funds or other assets to its subsidiaries or other property in which, or from a person in which the persons in which it has an equity investment, and such general partner or affiliate has an interest. persons may borrow funds from the AIMCO Operating Notwithstanding the foregoing and according to the Partnership, on terms and conditions established in the terms of your partnership's agreement of limited sole and absolute discretion of the general partner. To partnership, the general partner may purchase property the extent consistent with the business purpose of the in its own name and temporarily (for a period not to AIMCO Operating Partnership and the permitted exceed 180 days) hold title thereto for the purpose of activities of the general partner, the AIMCO Operating facilitating the acquisition of such property or the Partnership may transfer assets to joint ventures, borrowing of money or obtaining of financing for your limited liability companies, partnerships, partnership, or the completion of construction of the corporations, business trusts or other business property, or any other purpose related to the business entities in which it is or thereby becomes a of your partnership, provided that such property is participant upon such terms and subject to such purchased by your partnership for a price no greater conditions consistent with the AIMCO Operating Part- than the cost of such property to the general partner nership Agreement and applicable law as the general and provided there is no difference in interest rates partner, in its sole and absolute discretion, believes of the loans secured by the property at the time to be advisable. Except as expressly permitted by the acquired by the general partner and at the time AIMCO Operating Partnership Agreement, neither the acquired by your partnership, nor any other benefit to general partner nor any of its affiliates may sell, the general partner arising out of such transaction transfer or convey any property to the AIMCO Operating apart from compensation otherwise permitted by your Partnership, directly or indirectly, except pursuant to partnership's agreement of limited partnership. Your transactions that are determined by the general partner partnership may not sell or lease property to the in good faith to be fair and reasonable. general partner or affiliate except to the extent that your partnership enters into a joint venture with an affiliate. Your partnership may own or lease properties jointly or in partnership with others, including affiliates of the general partner, foreign or institutional-type investors, or syndications formed with such persons in accordance with the requirements set forth in your partnership's agreement of limited partnership. Your partnership may not make any loan to the general partner or affiliates. The general partner may not grant the general partner or an affiliate an exclusive right to sell or exclusive employment to sell assets for your partnership. Also, the general partner may not cause your partnership to enter any agreements with the general partner or its affiliates that are not subject to termination without penalty by either party upon not more than 60 days written notice, except as specified under your partnership's agreement of limited partnership.
S-59 3118 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 25% of the purchase price of all assets on a combined basis during the initial two-year period commencing upon the termination of the offering; provided, however, that thereafter, total indebtedness may not exceed 80% of the purchase price of the assets and with respect to property, the most recent appraised value of the property may be substituted for the initial purchase price of such property. Provided that the aggregate indebtedness does not exceed this limitation, your partnership may use any particular asset as security for any size loan. Your partnership may not incur any nonrecourse indebtedness wherein the lender will have or acquire at any time or as a result of making the loan, any direct or indirect interest in the profits, capital, or property of your partnership, other than as a secured creditor. In the event the general partner elects to refinance any property, the general partner will use its best efforts to obtain level payment financing on the most favorable terms available to your partnership. Your partnership may not obtain financing which would be secured by a first mortgage on a property, unless the prior approval of the California Department of Corporations is obtained, if such mortgage provides for a balloon payment which becomes due sooner than the earlier of: (1) ten years from the acquisition date of the property or (2) three years beyond the anticipated holding period of the property; provided in such case that the balloon payment may not become due sooner than seven years from the acquisition date of the property. Secondary financing, if any, must be fully amortizing or, if not fully amortizing, must not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less than 10% of the purchase price of a property, or financing representing, in aggregate 25% or less of the total purchase price of the properties acquired. Your partnership may borrow funds using the properties, mortgage loans or mortgage backed securities and the like as collateral.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited partner requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
S-60 3119 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to partner, any officer or director of general partner or indemnification by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or non-performance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding any other provision to the Act of 1933. contrary, the general partner, the corporate limited partner, any employee and any of its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from
S-61 3120 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. Subject to certain partner may not be removed as general partner of the exceptions, the general partner may not withdraw or AIMCO Operating Partnership by the OP Unitholders with retire from its position without the prior consent of or without cause. Under the AIMCO Operating Partnership the limited partners holding a majority of units. Such Agreement, the general partner may, in its sole consent is also necessary to appoint a new general discretion, prevent a transferee of an OP Unit from partner. No limited partner may substitute a transferee becoming a substituted limited partner pursuant to the of his units in such limited partner's place without AIMCO Operating Partnership Agreement. The general the consent of the general partner which may be partner may exercise this right of approval to deter, withheld at the sole discretion of the general delay or hamper attempts by persons to acquire a partners. controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with holders of a majority of the outstanding Common OP applicable tax laws, to comply with federal and state Units, excluding AIMCO and certain other limited securities law, to cure any ambiguities, and to make exclusions (a "Majority in Interest"). Amendments to whatever changes the general partner deems necessary or the AIMCO Operating Partnership Agreement may be proper so that the assets will not be considered assets proposed by the general partner or by holders of a of a plan or will be exempt from the appropriate ERISA Majority in Interest. Following such proposal, the rules. Other amendments to your partnership's agreement general partner will submit any proposed amendment to of limited partnership must be approved by the limited the OP Unitholders. The general partner will seek the partners owning more than 50% of the units. However, written consent of the OP Unitholders on the proposed the limited partners may not amend your partnership's amendment or will call a meeting to vote thereon. See agreement of limited partnership (1) to extend your "Description of OP Units -- Amendment of the AIMCO partnership term or (2) to alter the rights of the Operating Partnership Agreement" in the accompanying general partner to receive compensation, return of Prospectus. invested capital, allocations, and distributions, without the consent of the general partner.
Compensation and Fees Your partnership's agreement of limited partnership The general partner does not receive compensation for provides for a partnership management fee as calculated its services as general partner of the AIMCO Operating as set forth in partnership's agreement of limited Partnership. However, the general partner is entitled partnership for its services as general partner and may to payments, allocations and distributions in its also receive reimbursement for expenses incurred in capacity as general partner of the AIMCO Operating such capacity. Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 3121 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, the Operating Partnership Agreement expressly limits the general partner and its affiliates may engage in liability of the general partner by providing that the whatever activities they choose, whether the same are general partner, and its officers and directors will competitive with your partnership or otherwise, without not be liable or accountable in damages to the AIMCO having or incurring any obligation to offer any Operating Partnership, the limited partners or interest in such activities to your partnership or any assignees for errors in judgment or mistakes of fact or limited partner. The obligations of the parties are, law or of any act or omission if the general partner or therefore, limited solely to those arising from the such director or officer acted in good faith. See acquisition and holding of your partnership's "Description of OP Units -- Fiduciary Responsibilities" properties. in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 3122 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, unless applicable law or in the AIMCO ship Agreement, the OP Unitholders prior consent of the limited Operating Partnership Agreement, have voting rights only with partners holding a majority the holders of the Preferred OP respect to certain limited matters interest in your partnership is Units will have the same voting such as certain amendments and obtained, the general partner is rights as holders of the Common OP termination of the AIMCO Operating prohibited from: (1) amending your Units. See "Description of OP Partnership Agreement and certain partnership's agreement of limited Units" in the accompanying transactions such as the partnership, except as otherwise Prospectus. So long as any institution of bankruptcy provided in the agreement; (2) Preferred OP Units are outstand- proceedings, an assignment for the retiring from its position as ing, in addition to any other vote benefit of creditors and certain general partner; (3) appointing a or consent of partners required by transfers by the general partner of new general partner or partners; law or by the AIMCO Operating its interest in the AIMCO Operating (4) selling substan- Partnership Agree- Part-
S-64 3123 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tially all of your partnership's ment, the affirmative vote or nership or the admission of a assets in a single sale or in consent of holders of at least 50% successor general partner. multiple sales in the same 12-month of the outstanding Preferred OP period, except in the orderly Units will be necessary for Under the AIMCO Operating Partner- liquidation and winding up of the effecting any amendment of any of ship Agreement, the general partner business; (5) dissolving your the provisions of the Partnership has the power to effect the partnership, except as provided in Unit Designation of the Preferred acquisition, sale, transfer, your partnership's agreement of OP Units that materially and exchange or other disposition of limited partnership; (6) ex- adversely affects the rights or any assets of the AIMCO Operating ecuting or delivering any preferences of the holders of the Partnership (including, but not assignment for the benefit of the Preferred OP Units. The creation or limited to, the exercise or grant creditors of your partnership; or issuance of any class or series of of any conversion, option, (7) releasing, assigning, or partnership units, including, privilege or subscription right or transferring a partnership claim, without limitation, any partner- any other right available in security, commodity or any other ship units that may have rights connection with any assets at any asset of your partnership without senior or superior to the Preferred time held by the AIMCO Operating full and adequate consideration. OP Units, shall not be deemed to Partnership) or the merger, Neither the limited partners nor materially adversely affect the consolidation, reorganization or the unitholders have any right to rights or preferences of the other combination of the AIMCO vote on or approve transactions in holders of Preferred OP Units. With Operating Partnership with or into which the general partner has an respect to the exercise of the another entity, all without the actual or potential conflict of above described voting rights, each consent of the OP Unitholders. interest; the sale, exchange, Preferred OP Units shall have one financing, refinancing, or other (1) vote per Preferred OP Unit. The general partner may cause the disposition of properties; or any dissolution of the AIMCO Operating other matter not specifically Partnership by an "event of provided for in your partner- withdrawal," as defined in the ship's agreement of limited Delaware Limited Partnership Act partnership. (including, without limitation, bankruptcy), unless, within 90 days A general partner may cause the after the withdrawal, holders of a dissolution of your partnership by "majority in interest," as defined retiring. Your partnership may be in the Delaware Limited Partnership continued by the remaining general Act, agree in writing, in their partner. If the general partner sole and absolute discretion, to ceased to be a general partner due continue the business of the AIMCO to its termination under your Operating Partnership and to the partnership's agreement of limited appointment of a successor general partnership and there was no partner. The general partner may remaining or surviving general elect to dissolve the AIMCO partner, the holders of a majority Operating Partnership in its sole of the outstanding units must vote and absolute discretion, with or to continue the business and admit without the consent of the OP one or more general partners. If Unitholders. See "Description of OP the general partner ceased to be a Units -- Dissolution and Winding general partner other than by Up" in the accompanying Prospectus. termination under your partnership's agreement of limited partnership and there was no remaining or surviving general partner, all of the holders of outstanding units must affirmatively vote to continue the business and admit one or more general partners.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made provided, however, that at any time portion as the general partner may during the fiscal year. The and from time to time on or after in its sole and absolute discretion distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by results and net sales or refinanc- adjust the annual distribution rate the AIMCO Operating Partnership ing proceeds available from the on the Preferred OP Units to the during such quarter to the general disposition of your partnership's lower of (i) % plus the annual partner, the special limited assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend with respect to such quarter, in accordance
S-65 3124 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS rate on the most recently issued with their respective interests in AIMCO non-convertible preferred the AIMCO Operating Partnership on stock which ranks on a parity with such record date. Holders of any its Class H Cumulative Preferred other Preferred OP Units issued in Stock. Such distributions will be the future may have priority over cumulative from the date of origi- the general partner, the special nal issue. Holders of Preferred OP limited partner and holders of Units will not be entitled to Common OP Units with respect to receive any distributions in excess distributions of Available Cash, of cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights Units are transferable, subject to There is no public market for the There is no public market for the appropriate federal or state Preferred OP Units and the OP Units. The AIMCO Operating Part- securities laws, provided the Preferred OP Units are not listed nership Agreement restricts the prospective transferee provides the on any securities exchange. The transferability of the OP Units. general partner with information as Preferred OP Units are subject to Until the expiration of one year may be necessary or appropriate to restrictions on transfer as set from the date on which an OP determine suitability under forth in the AIMCO Operating Unitholder acquired OP Units, applicable securities laws, and Partnership Agreement. subject to certain exceptions, such such other information as the OP Unitholder may not transfer all general partner may request, and a Pursuant to the AIMCO Operating or any portion of its OP Units to fee imposed by the general partner Partnership Agreement, until the any transferee without the consent in its sole discretion, however, expiration of one year from the of the general partner, which not to exceed the lesser of actual date on which a holder of Preferred consent may be withheld in its sole cost and $100, unless any of the OP Units acquired Preferred OP and absolute discretion. After the following restrictions applies: (1) Units, subject to certain expiration of one year, such OP the transferee is not suitable exceptions, such holder of Unitholder has the right to under applicable federal or state Preferred OP Units may not transfer transfer all or any portion of its securities laws, (2) the transferee all or any portion of its Pre- OP Units to any person, subject to is a nonresident alien or foreign ferred OP Units to any transferee the satisfaction of certain corporation, (3) the transfer would without the consent of the general conditions specified in the AIMCO cause the assets of your partner, which consent may be Operating Partnership Agreement, partnership to be "plan assets" or withheld in its sole and absolute including the general partner's the transaction contemplated would discretion. After the expiration of right of first be prohibited under
S-66 3125 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS applicable ERISA or corporate laws, one year, such holders of Preferred refusal. See "Description of OP (4) the transfer would result in OP Units has the right to transfer Units -- Transfers and Withdrawals" the establishment of a secondary all or any portion of its Preferred in the accompanying Prospectus. trading market or the substantial OP Units to any person, subject to equivalent thereof which would the satisfaction of certain After the first anniversary of cause your partnership to be taxed conditions specified in the AIMCO becoming a holder of Common OP as a corporation under the Revenue Operating Partnership Agreement, Units, an OP Unitholder has the Act of 1987, (5) the transfer would including the general partner's right, subject to the terms and cause the termination of your right of first refusal. conditions of the AIMCO Operating partnership under Federal tax laws. Partnership Agreement, to require A unitholder may not exchange a After a one-year holding period, a the AIMCO Operating Partnership to unit for a limited partner in- holder may redeem Preferred OP redeem all or a portion of the terest and become a substitute Units and receive in exchange Common OP Units held by such party limited partner without the consent therefor, at the AIMCO Operating in exchange for a cash amount based of the general partner, which may Partnership's option, (i) subject on the value of shares of Class A be withheld in its sole discretion. to the terms of any Senior Units, Common Stock. See "Description of In order to transfer a limited cash in an amount equal to the OP Units -- Redemption Rights" in partner interest, the general Liquidation Preference of the the accompanying Prospectus. Upon partner must consent, which consent Preferred OP Units tendered for receipt of a notice of redemption, may be withheld in its sole redemption, (ii) a number of shares the AIMCO Operating Partnership discretion. A limited partner, of Class I Cumulative Preferred may, in its sole and absolute except as provided in your Stock of AIMCO that pay an discretion but subject to the partnership's agreement of limited aggregate amount of dividends yield restrictions on the ownership of partnership, may not sell, equivalent to the distributions on Class A Common Stock imposed under transfer, encumber, or otherwise the Preferred OP Units tendered for AIMCO's charter and the transfer dispose, by operation of law or redemption and are part of a class restrictions and other limitations otherwise, of the whole or any part or series of preferred stock that thereof, elect to cause AIMCO to of his interest in your partnership is then listed on the New York acquire some or all of the tendered except by written instrument, Stock Exchange or another national Common OP Units in exchange for accompanied by such assurance of securities exchange, or (iii) a Class A Common Stock, based on an the genuineness and effectiveness number of shares of Class A Common exchange ratio of one share of of each such signature and the Stock of AIMCO that is equal in Class A Common Stock for each Com- obtaining of any federal and/or Value to the Liquidation Preference mon OP Unit, subject to adjustment state governmental approval, if of the Preferred OP Units tendered as provided in the AIMCO Operating any, as may be reasonably re- for redemption. The Preferred OP Partnership Agreement. quired by the general partner. No Units may not be redeemed at the transfer will be effective if it option of the AIMCO Operating results in the termination of your Partnership. See "Description of partnership for Federal or state Preferred OP Units -- Redemption." tax purposes. Additionally, the proposed transfer must in all cases be registered under the Securities Act of 1933, or an exemption from such registration must be available, as reflected in an opinion of counsel satisfactory in form and substance to the general partner. Such transferee may be substituted as a limited partner if, in addition to the above requirements: (1) the assignor designates such intention in the instrument of assignment, (2) none of the restrictions in your partnership's agreement of limited partnership apply, (3) the assignor and assignee duly execute and acknowledge such other instrument or instruments as the general partner may deem necessary or desirable and (4) the assignee accepts, adopts and approves in writing all of the terms and provisions of your partnership's agreement of limited partnership.
S-67 3126 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 3127 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 3128 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 3129 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 3130 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 3131 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 3132 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 3133 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 3134 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives a partnership management fee as calculated in your partnership's agreement of limited partnership for its services as general partner and may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $121,000 in 1996, $125,000 in 1997 and $47,000 for the first six months of 1998. The property manager received management fees of $95,000 in 1996, $108,000 in 1997 and $58,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 3135 YOUR PARTNERSHIP GENERAL Johnstown/Consolidated Income Partners was organized on January 9, 1986, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of a 158-unit residential apartment complex in Independence, Missouri, a 64,240 square foot storage center in Davie, Florida and a 79,854 square foot office building in Atlanta, Georgia. The general partner of your partnership is Concap Equities, Inc., which is a majority-owned subsidiary of AIMCO. Your property manager is a majority-owned subsidiary of AIMCO. As of December 31, 1997, there were 128,810 units of limited partnership interest issued and outstanding, which were held of record by 2,549 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated June 30, 1986, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) anticipated that your partnership would sell or refinance its properties seven years after their acquisitions, depending on the current real estate and capital markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2017, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In S-77 3136 addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith or promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense or your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding (whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Expenses incurred in defending a civil or criminal action, suit, or proceeding may be paid by your partnership in advance of the final disposition of such action, suit, or proceeding as authorized by your partnership in the specific action if the action relates to the performance of duties or services on behalf of your partnership, your partnership receives an undertaking by or on behalf of the person indemnified to repay such amount to your partnership unless it ultimately determined that such person is entitled to be indemnified by your partnership as authorized in your partnership's agreement of limited partnership. Notwithstanding any other provision to the contrary, the general partner, the corporate limited partner, any employee and any of its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance, other than public liability insurance, which insures any party against any liability the indemnification of which is prohibited under your partnership's agreement of limited partnership. S-78 3137 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $250.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $7.69 January 1, 1996 - December 31, 1996......................... 7.69 January 1, 1997 - December 31, 1997......................... 7.69 January 1, 1998 - June 30, 1998............................. 7.69
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 20.9% interest in your partnership, including a 1% interest held by your general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $204,000 1995........................................................ 229,000 1996........................................................ 121,000 1997........................................................ 125,000 1998 (through June 30)...................................... 47,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees and other fees to affiliates as described in the following table:
YEAR FEES - ---- ---------- 1994........................................................ $ 59,000 1995........................................................ 115,000 1996........................................................ 95,000 1997........................................................ 108,000 1998 (through June 30)...................................... 58,000
In 1997, the partnership paid to an affiliate of the general partner approximately $25,000 in reimbursements relating to the sale of a mini-warehouse. For the first six months of 1998, $13,000 of construction oversight costs and $78,000 of lease commissions were paid to affiliates. If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 3138 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 3139 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Johnstown/Consolidated Income Partners appearing in Johnstown/Consolidated Income Partners Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 3140 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Johnstown/Consolidated Income Partners (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3141 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3142 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3143 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3145
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3146
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3147
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3148 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3149 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CLASS A MULTI-BENEFIT REALTY FUND '87-1 IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $89.00 per unit and an affiliate estimated the net liquidation value of your units to be $86.85 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3150 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Multi-Benefit Realty Fund '87-1............ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 3151
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3152 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Multi-Benefit Realty Fund '87-1. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3153 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3154 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $3.54 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3155 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, [your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and] the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $23.17 per unit to $65.00 per Class A unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $89.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $86.85 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 3156 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3157 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3158 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3159 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $89 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $86.85 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $23.17 per unit to $65.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 3160 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. S-9 3161 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. S-10 3162 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. S-11 3163 Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 25.1% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your S-12 3164 investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 3165 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 3166 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 3167 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 3168 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $23.17 to $65.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 3169 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership is entitled to receive an annual management fee equal to 9% of Distributable Cash from Operations (as that term is defined in your partnership's agreement of limited partnership) and may also receive reimbursement for expenses incurred in such capacity. The general partner received total fees and reimbursements of $31,000 for the first six months of 1998. The property manager received management fees of $128,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Multi-Benefit Realty Fund '87-1 was organized on September 8, 1986, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed S-18 3170 for the purpose of making investments in various types of real properties which offer potential capital appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Carlin Manor Apartments, a 278-unit complex in Columbus, Ohio; Hunt Club Apartments, a 200-unit complex in Indianapolis, Indiana; and Shadow Brook Apartments, a 300-unit complex in West Valley City, Utah. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. December 31, 1997, there were 96,284 Class A units of limited partnership interest issued and outstanding, which were held of record by 905 limited partners and 75,152 Class B units of limited partnership outstanding which were held by 1,003 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3171 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3172
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3173 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3174
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3175 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3176 SUMMARY FINANCIAL INFORMATION OF MULTI-BENEFIT REALTY FUND '87-1 The summary financial information of Multi-Benefit Realty Fund '87-1 for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Multi-Benefit Realty Fund '87-1 for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. MULTI-BENEFIT REALTY FUND '87-1
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 2,600 $ 2,486 $ 5,044 $ 4,861 $ 5,272 Net Income (Loss)........................................... 199 105 15 46 383 Net Income (Loss) per limited partnership unit.............. 1.15 0.60 0.09 0.27 2.21 Distributions per Class A limited partnership unit.......... 3.54 7.08 14.16 4.72 9.44
JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- Real Estate, Net of Accumulated Depreciation................ $12,677 $13,307 $13,030 $13,551 $14,053 Total Assets................................................ 14,946 15,909 15,116 16,612 16,334 Notes Payable............................................... 12,251 12,319 12,285 12,350 11,331 Partners' Capital (Deficit)................................. 1,969 2,892 2,114 3,476 3,889
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING MULTI-BENEFIT PARTNERSHIP REALTY FUND '87-1 ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $3.54 $14.16
S-25 3177 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $23.17 per unit to $65.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $89.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $86.85 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 3178 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 3179 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a [few properties]. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Distributions with respect to your units for the six months ended June 30, 1998 were $3.54 per unit (equivalent to $ on an annualized basis). Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 3180 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 44.0% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia S-29 3181 (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Insignia began as tender offer for Class A units in your partnership on September 23, 1998 which we continued. Pursuant to such tender offer we acquired Class A units for $ per unit on , 1998. Prior to the Insignia Merger, a tender offer had been made to acquire units of your partnership. In December 1997, Madison River Properties, L.L.C., then an affiliate of Insignia and now our affiliate commenced a tender offer pursuant to which it acquired 23,090 units (representing approximately 24% of the number outstanding) at a cash purchase price of $50 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 3182 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 3183 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 3184 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 3185 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 3186 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 3187 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 3188 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 3189 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 3190 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 3191 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 3192 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 3193 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 3,480 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 3.61% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 3194 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 3195 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 3196 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 3197 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 3198 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 3199 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Carlin Manor Apartments $ % $ Hunt Club Apartments Shadow Brook Apartments
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 3200 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per Class A unit.................................. $ ----------- Cash consideration per Class A unit......................... -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 3201 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. Distributions with respect to your units for the six months ended June 30, 1998 were $3.54 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 3202 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 3203 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $23.17 to $65.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 25,572 units (representing approximately 28.1% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. MULTI-BENEFIT REALTY FUND '87-1 REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $32.00 $49.66 (d) (d) Second Quarter.................................. (c) (c) $29.00 $41.00 First Quarter................................... 41.00 55.00 42.00 45.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 32.00 66.00 38.00 38.00 Third Quarter................................... 44.00 60.00 36.00 66.00 Second Quarter.................................. 29.00 65.00 44.00 65.00 First Quarter................................... 40.00 53.00 58.00 71.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 23.00 40.00 40.00 53.00 Third Quarter................................... 42.00 52.00 44.00 44.00 Second Quarter.................................. 32.00 64.00 -- -- First Quarter................................... (c) (c) -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-52 3204 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) No units were reported by the general partner as having been sold during the quarter. (d) Information not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Carlin Manor Apartments and Shadow Brook Apartments were appraised in 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with an initial financing of one property and a refinancing of the other property. According to the appraisal reports, the scope of the appraisals included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the S-53 3205 Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of each of the properties specified in those appraisal reports was $4,750,000 for Carlin Manor Apartments and $11,750,000 for Shadow Brook Apartments. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $89. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of Class A units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-54 3206 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and S-55 3207 local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect S-56 3208 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 3209 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2036. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' and amended from time to time, or any successor to such unitholders' invested capital by investing, either statute) (the "Delaware Limited Partnership Act"), alone or in association with others, in a diversified provided that such business is to be conducted in a portfolio of low or moderately-leveraged manner that permits AIMCO to be qualified as a REIT, income-producing properties, (2) provide quarterly cash unless AIMCO ceases to qualify as a REIT. The AIMCO distributions to certain unitholders, and, on an annual Operating Partnership is authorized to perform any and basis, excess cash distributions to certain all acts for the furtherance of the purposes and unitholders, generated by the properties, (3) provide business of the AIMCO Operating Partnership, provided gains through potential appreciation of the properties, that the AIMCO Operating Partnership may not take, or (4) build equity through reduction of mortgage loans refrain from taking, any action which, in the judgment and (5) diversify your partnership's investment risks. of its general partner could (i) adversely affect the Subject to restrictions contained in your partnership's ability of AIMCO to continue to qualify as a REIT, (ii) agreement of limited partnership, your partnership may subject AIMCO to certain income and excise taxes, or perform all acts necessary, advisable or convenient to (iii) violate any law or regulation of any governmental the business of your partnership including borrowing body or agency (unless such action, or inaction, is money and creating liens. 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.
S-58 3210 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 600,000 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not purchase or lease funds or other assets to its subsidiaries or other property in which, or from a person in which the persons in which it has an equity investment, and such general partner or affiliate has an interest. persons may borrow funds from the AIMCO Operating Notwithstanding the foregoing and according to the Partnership, on terms and conditions established in the terms of your partnership's agreement of limited sole and absolute discretion of the general partner. To partnership, the general partner may purchase property the extent consistent with the business purpose of the in its own name and temporarily (for a period not to AIMCO Operating Partnership and the permitted exceed 180 days) hold title thereto for the purpose of activities of the general partner, the AIMCO Operating facilitating the acquisition of such property or the Partnership may transfer assets to joint ventures, borrowing of money or obtaining of financing for your limited liability companies, partnerships, partnership, or the completion of construction of the corporations, business trusts or other business property, or any other purpose related to the business entities in which it is or thereby becomes a of your partnership, provided that such property is participant upon such terms and subject to such purchased by your partnership for a price no greater conditions consistent with the AIMCO Operating Part- than the cost of such property to the general partner nership Agreement and applicable law as the general and provided there is no difference in interest rates partner, in its sole and absolute discretion, believes of the loans secured by the property at the time to be advisable. Except as expressly permitted by the acquired by the general partner and at the time AIMCO Operating Partnership Agreement, neither the acquired by your partnership, nor any other benefit to general partner nor any of its affiliates may sell, the arising out of such transaction apart from transfer or convey any property to the AIMCO Operating compensation otherwise permitted by your partnership's Partnership, directly or indirectly, except pursuant to agreement of limited partnership. Your partnership may transactions that are determined by the general partner not sell or lease property to the general partner or in good faith to be fair and reasonable. its affiliate except to the extent that your partnership enters into a joint venture with an affiliate. Your partnership may own or lease properties jointly or in partnership with others, including affiliates of the general partner, foreign or institutional-type investors, or syndications formed with such persons in accordance with the requirements set forth in your partnership's agreement of limited partnership. Your partnership may not make any loan to the general partner or affiliates. The general partner may not grant the general partner or an affiliate an exclusive right to sell or exclusive employment to sell assets for your partnership. Also, the general partner may not cause your partnership to enter any agreements with the general partner or its affiliates that are not subject to termination without penalty by either party upon not more than 60 days' written notice, except as specified under your partnership's agreement of limited partnership.
S-59 3211 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 50% of the purchase price of all properties on a combined basis during the initial two-year period commencing upon the termination of the offering; provided, however, that thereafter, total indebtedness may not exceed 80% of the purchase price of the property. Your partnership may not incur any nonrecourse indebtedness wherein the lender will have or acquire at any time or as a result of making the loan, any direct or indirect interest in the profits, capital, or property of your partnership, other than as a secured creditor. Your partnership may not obtain financing which would be secured by a first mortgage on a property, unless the prior approval of the California Department of Corporations is obtained, if such mortgage provides for a balloon payment which becomes due sooner than the earlier of: (1) ten years from the acquisition date of the property or (2) three years beyond the anticipated holding period of the property provided in such case that the balloon payment may not become due sooner than seven years from the acquisition date of the property. Secondary financing, if any, must be fully amortizing or, if not fully amortizing, must not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less than 10% of the purchase price of a property, or financing representing, in aggregate 25% or less of the total purchase price of the properties acquired. Your partnership may borrow funds using the properties as collateral.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner connection with the business of your partnership
S-60 3212 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP without the consent of the limited partners. No limited may not be removed by the OP Unitholders with or partner has any authority or right to act for or bind without cause. your partnership or participate in or have any control over your partnership business except as required by In addition to the powers granted a general partner of law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to partner, any officer or director of general partner or indemnification by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or non-performance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding any other provision to the Act of 1933. contrary, the general partner, the corporate limited partner, any employee and any of its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction ap- proves a settlement of such claims. In any claim for indemnification for federal or state securities laws violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities laws violations.
S-61 3213 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. The general partner partner may not be removed as general partner of the may admit an additional or a substitute general partner AIMCO Operating Partnership by the OP Unitholders with with the consent of the limited partners owning a or without cause. Under the AIMCO Operating Partnership majority of the outstanding units. No limited partner Agreement, the general partner may, in its sole may substitute a transferee of his units in such discretion, prevent a transferee of an OP Unit from limited partner's place without the consent of the becoming a substituted limited partner pursuant to the general partner which may be withheld at the sole AIMCO Operating Partnership Agreement. The general discretion of the general partners. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with holders of a majority of the outstanding Common OP applicable tax laws, to comply with federal and state Units, excluding AIMCO and certain other limited securities laws and to cure any ambiguities. Other exclusions (a "Majority in Interest"). Amendments to amendments to your partnership's agreement of limited the AIMCO Operating Partnership Agreement may be partnership must be approved by the limited partners proposed by the general partner or by holders of a owning more than 50% of the units. However, the limited Majority in Interest. Following such proposal, the partners may not amend your partnership's agreement of general partner will submit any proposed amendment to limited partnership (1) to extend the partnership term the OP Unitholders. The general partner will seek the or (2) to alter the rights of the general partner to written consent of the OP Unitholders on the proposed receive compensation, return of invested capital, amendment or will call a meeting to vote thereon. See allocations, and distributions, without the consent of "Description of OP Units -- Amendment of the AIMCO the general partner. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees Your general partner receives an annual fee equal to 9% The general partner does not receive compensation for of Distributable Cash From Operations received by the its services as general partner of the AIMCO Operating limited partners for its services as general partner Partnership. However, the general partner is entitled and may also receive reimbursement for expenses to payments, allocations and distributions in its incurred in such capacity. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 3214 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, general Operating Partnership Agreement expressly limits the partner and its affiliates may engage in whatever liability of the general partner by providing that the activities they choose, whether the same are general partner, and its officers and directors will competitive with your partnership or otherwise, without not be liable or accountable in damages to the AIMCO having or incurring any obligation to offer any Operating Partnership, the limited partners or interest in such activities to your partnership or any assignees for errors in judgment or mistakes of fact or party hereto. The obligations of the parties are, law or of any act or omission if the general partner or therefore, limited solely to those arising from the such director or officer acted in good faith. See acquisition and holding of your partnership's "Description of OP Units -- Fiduciary Responsibilities" properties. in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 3215 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership; select law or by the AIMCO Operating its interest in the AIMCO Operating arbitration; and approve other mat- Partnership Agree- Part-
S-64 3216 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ters as otherwise provided in your ment, the affirmative vote or nership or the admission of a partnership's agreement of limited consent of holders of at least 50% successor general partner. partnership. Neither the limited of the outstanding Preferred OP partners nor the unitholders have Units will be necessary for Under the AIMCO Operating Partner- any right to vote on or approve effecting any amendment of any of ship Agreement, the general partner transactions in which the general the provisions of the Partnership has the power to effect the partner has an actual or potential Unit Designation of the Preferred acquisition, sale, transfer, conflict of interest; the sale, OP Units that materially and exchange or other disposition of exchange, financing, refinancing, adversely affects the rights or any assets of the AIMCO Operating or other disposition of proper- preferences of the holders of the Partnership (including, but not ties; or any other matter not Preferred OP Units. The creation or limited to, the exercise or grant specifically provided for in your issuance of any class or series of of any conversion, option, partnership's agreement of limited partnership units, including, privilege or subscription right or partnership. without limitation, any partner- any other right available in ship units that may have rights connection with any assets at any A general partner may cause the senior or superior to the Preferred time held by the AIMCO Operating dissolution of your partnership by OP Units, shall not be deemed to Partnership) or the merger, retiring. Your partnership may be materially adversely affect the consolidation, reorganization or continued by the remaining general rights or preferences of the other combination of the AIMCO partner or, if none, the limited holders of Preferred OP Units. With Operating Partnership with or into partners may agree to continue your respect to the exercise of the another entity, all without the partnership by electing a successor above described voting rights, each consent of the OP Unitholders. general partner upon the unanimous Preferred OP Units shall have one vote of the limited partners within (1) vote per Preferred OP Unit. The general partner may cause the a specified time. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made provided, however, that at any time portion as the general partner may during the fiscal year. The and from time to time on or after in its sole and absolute discretion distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by results and net sales or refinanc- adjust the annual distribution rate the AIMCO Operating Partnership ing proceeds available from the on the Preferred OP Units to the during such quarter to the general disposition of your partnership's lower of (i) % plus the annual partner, the special limited assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-65 3217 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights Units are not transferable, except There is no public market for the There is no public market for the upon death or by operation of law, Preferred OP Units and the OP Units. The AIMCO Operating Part- without the consent of the general Preferred OP Units are not listed nership Agreement restricts the partner which consent may be on any securities exchange. The transferability of the OP Units. withheld in the sole discretion of Preferred OP Units are subject to Until the expiration of one year the general partner. The general restrictions on transfer as set from the date on which an OP partner may consent to the forth in the AIMCO Operating Unitholder acquired OP Units, transfers provided that prospective Partnership Agreement. subject to certain exceptions, such transferee provides the general OP Unitholder may not transfer all partner with information as may be Pursuant to the AIMCO Operating or any portion of its OP Units to necessary or appropriate to deter- Partnership Agreement, until the any transferee without the consent mine suitability under applicable expiration of one year from the of the general partner, which securities laws, and such other date on which a holder of Preferred consent may be withheld in its sole information as the general partner OP Units acquired Preferred OP and absolute discretion. After the may request, and a fee imposed by Units, subject to certain expiration of one year, such OP the general partner in its sole exceptions, such holder of Unitholder has the right to discretion, unless any of the Preferred OP Units may not transfer transfer all or any portion of its following restrictions applies: (1) all or any portion of its Pre- OP Units to any person, subject to the transferee is not suitable ferred OP Units to any transferee the satisfaction of certain under applicable federal or state without the consent of the general conditions specified in the AIMCO securities laws, (2) the transferee partner, which consent may be Operating Partnership Agreement, is a nonresident alien or tax withheld in its sole and absolute including the general partner's exempt entity, (3) the transfer discretion. After the expiration of right of first refusal. See would cause the assets of your one year, such holders of Preferred "Description of OP Units -- partnership to be "plan assets" or OP Units has the right to transfer Transfers and Withdrawals" in the the transaction contemplated to be all or any portion of its Preferred accompanying Prospectus. prohibited under applicable ERISA OP Units to or corporate
S-66 3218 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS laws, or (4) the transfer would any person, subject to the cause the termination of your satisfaction of certain conditions After the first anniversary of partnership under Federal tax laws. specified in the AIMCO Operating becoming a holder of Common OP A unitholder may not exchange a Partnership Agreement, including Units, an OP Unitholder has the unit for a limited partner in- the general partner's right of right, subject to the terms and terest and/or become a substituted first refusal. conditions of the AIMCO Operating limited partner without the consent Partnership Agreement, to require of the general partner. In order to After a one-year holding period, a the AIMCO Operating Partnership to transfer a limited partner holder may redeem Preferred OP redeem all or a portion of the interest, the general partner must Units and receive in exchange Common OP Units held by such party consent, which consent may be therefor, at the AIMCO Operating in exchange for a cash amount based withheld in its sole discretion. A Partnership's option, (i) subject on the value of shares of Class A limited partner, except as provided to the terms of any Senior Units, Common Stock. See "Description of in your partnership's agreement of cash in an amount equal to the OP Units -- Redemption Rights" in limited partnership, may not sell, Liquidation Preference of the the accompanying Prospectus. Upon transfer, encumber, or otherwise Preferred OP Units tendered for receipt of a notice of redemption, dispose, by operation of law or redemption, (ii) a number of shares the AIMCO Operating Partnership otherwise, of the whole or any part of Class I Cumulative Preferred may, in its sole and absolute of his interest in your partnership Stock of AIMCO that pay an discretion but subject to the except by written instrument, aggregate amount of dividends yield restrictions on the ownership of accompanied by such assurance of equivalent to the distributions on Class A Common Stock imposed under the genuineness and effectiveness the Preferred OP Units tendered for AIMCO's charter and the transfer of each such signature and the redemption and are part of a class restrictions and other limitations obtaining of any federal and/or or series of preferred stock that thereof, elect to cause AIMCO to state governmental approval, if is then listed on the New York acquire some or all of the tendered any, as may be reasonably required Stock Exchange or another national Common OP Units in exchange for by the general partner. securities exchange, or (iii) a Class A Common Stock, based on an Additionally, the proposed transfer number of shares of Class A Common exchange ratio of one share of must in all cases be registered Stock of AIMCO that is equal in Class A Common Stock for each Com- under the Securities Act of 1933, Value to the Liquidation Preference mon OP Unit, subject to adjustment or an exemption from such of the Preferred OP Units tendered as provided in the AIMCO Operating registration shall be available, as for redemption. The Preferred OP Partnership Agreement. reflected in an opinion of counsel Units may not be redeemed at the satisfactory in form and substance option of the AIMCO Operating to the general partner. No partner Partnership. See "Description of may make any assignment of all or Preferred OP Units -- Redemption." any part of his interest in your partnership if the said transfer or assignment would, when considered with all other transfers during the same applicable 12-month period, cause a termination of your partnership for federal or any applicable state income tax purposes. Such transferee may be substituted as a limited partner if, in addition to the above requirements: (1) the assignor designates such intention in the instrument of assignment, (2) the written consent of the general partner to such substitution is obtained, which consent, in the general partner's absolute discretion, may be withheld, (3) the assignment instrument is in form and substance satisfactory to the general partner, (4) the assignor and assignee duly execute and acknowledge such other instrument or instruments as the general partner may deem necessary or desirable and (5) the assignee accepts, adopts and approves in writing all of the terms and provisions of your partnership's agreement of limited partnership.
S-67 3219 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 3220 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 3221 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 3222 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 3223 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 3224 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 3225 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 3226 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 3227 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 9% of Distributable Cash from Operations (as that term is defined in your partnership's agreement of limited partnership) and may also receive reimbursement for expenses incurred in such capacity. The general partner received fees and reimbursements totaling $219,000 in 1996, $247,000 in 1997, and $31,000 for the first six months of 1998. The property manager received management fees of $240,000 in 1996, $248,000 in 1997 and $128,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 3228 YOUR PARTNERSHIP GENERAL Multi-Benefit Realty Fund '87-1 was organized on September 8, 1986, under laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Carlin Manor Apartments, a 278-unit complex in Columbus, Ohio; Hunt Club Apartments, a 200-unit complex in Indianapolis, Indiana; and Shadow Brook Apartments, a 300-unit complex in West Valley City, Utah. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 96,284 units of limited partnership interest issued and outstanding, which were held of record by 905 limited partners and 75,152 Class B units of limited partnership units outstanding which were held by 1,003 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated December 10, 1986, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2036, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the S-77 3229 partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding, whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Expenses incurred in defending a civil or criminal action, suit, or proceeding may be paid by your partnership in advance of the final disposition of such action, suit, or proceeding as authorized by your partnership in the specific action if the action relates to your performance of duties or services on behalf of your partnership, your partnership receives an undertaking by or on behalf of the person indemnified to repay such amount to your partnership unless it is ultimately determined that such person is entitled to be indemnified by your partnership as authorized in your partnership's agreement of limited partnership. Notwithstanding any other provision to the contrary, the general partner, the corporate limited partner, any employee and any of its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities S-78 3230 laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance, other than public liability insurance, which insures any party against any liability the indemnification of which is prohibited under your partnership's agreement of limited partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $100.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 9.44 January 1, 1996 - December 31, 1996......................... 4.72 January 1, 1997 - December 31, 1997......................... 14.16 January 1, 1998 - June 30, 1998............................. 3.54
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 25.1% interest in your partnership including interests held by us and the interest held by ConCap Equities, Inc. as general partner of your partnership. Except as set forth herein, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $142,000 1995........................................................ 202,000 1996........................................................ 219,000 1997........................................................ 247,000 1998 (through June 30)...................................... 87,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $112,000 1995........................................................ 223,000 1996........................................................ 240,000 1997........................................................ 248,000 1998 (through June 30)...................................... 128,000
S-79 3231 If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 3232 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Multi-Benefit Realty Fund '87-1 appearing in Multi-Benefit Realty Fund '87-1 Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 3233 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding Class A limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3234 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3235 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3236 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3238
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3239
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3240
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3241 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3242 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CLASS B MULTI-BENEFIT REALTY FUND '87-1 IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of June 30, 1998, your general partner estimated the net asset value of your units to be $68.00 per unit and an affiliate of the general partner estimated the net liquidation value of your units to be $65.84 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3243 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Multi-Benefit Realty Fund '87-1............ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-55 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-57 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-58 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 3244
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3245 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Multi-Benefit Realty Fund '87-1. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in ConCap Equities, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3246 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3247 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has never paid distributions on Class B units. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3248 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $32.00 per unit to $65.00 per Class B unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $68 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $65.84 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 3249 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3250 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3251 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3252 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, your general partner estimated the net asset value of your units to be $68 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $65.84 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $32.00 per unit to $65.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any S-8 3253 deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 3254 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 3255 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 3256 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 43.96% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 3257 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 3258 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. S-14 3259 Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . S-15 3260 Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units.....................................................
S-16 3261 Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $32.00 to $65.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-17 3262 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 9% of Distributable Cash from Operations (as that term is defined in your partnership's agreement of limited partnership) and may also receive reimbursement for expenses incurred in such capacity. The general partner received management fees of $31,000 (excluding reimbursed expenses) for the first six months of 1998. The property manager received management fees of $128,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. S-18 3263 Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Multi-Benefit Realty Fund '87-1 was organized on September 8, 1986, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Carlin Manor Apartments, a 278-unit complex in Columbus, Ohio; Hunt Club Apartments, a 200-unit complex in Indianapolis, Indiana; and Shadow Brook Apartments, a 300-unit complex in West Valley City, Utah. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 96,284 Class A units of limited partnership interest issued and outstanding, which were held of record by 905 limited partners and 75,152 Class B units of limited partnership outstanding which were held by 1,003 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3264 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3265
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3266 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3267
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3268 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3269 SUMMARY FINANCIAL INFORMATION OF MULTI-BENEFIT REALTY FUND '87-1 The summary financial information of Multi-Benefit Realty Fund '87-1 for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Multi-Benefit Realty Fund '87-1 for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. MULTI-BENEFIT REALTY FUND '87-1
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------ -------------------------------- 1998 1997 1997 1996 1995 ------- ------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues..................................... $ 2,600 $ 2,486 $ 5,044 $ 4,861 $ 5,272 Net Income (Loss).................................. 199 105 15 46 383 Net Income (Loss) per limited partnership unit..... 1.15 0.60 0.09 0.27 2.21 Distributions per Class B limited partnership unit............................................. -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation....... $12,677 $13,307 $13,030 $13,551 $14,053 Total Assets....................................... 14,946 15,909 15,116 16,612 16,334 Notes Payable...................................... 12,251 12,319 12,285 12,350 11,331 Partners' Capital (Deficit)........................ 1,969 2,892 2,114 3,476 3,889
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING MULTI-BENEFIT PARTNERSHIP REALTY FUND '87-1 ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $-- $--
S-25 3270 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $32.00 per unit to $65.00 per unit from January 1, 1997 to September 30, 1998. As of June 30, 1998, your general partner estimated the net asset value of your units to be $68 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of June 30, 1998, an affiliate of your general partner estimated the net liquidation value of your units to be $65.84 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 3271 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. S-27 3272 RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. No distributions with respect to your units have ever been made in 1998. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. S-28 3273 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the property manager who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 43.964% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. S-29 3274 One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Insignia began a tender offer for Class B units in your partnership on September 23, 1998 which we continued. Pursuant to such tender offer we acquired Class B units for $ per unit on , 1998. Prior to the Insignia Merger, a tender offer had been made to acquire units of your partnership. In December 1997, Madison River Properties, L.L.C., then an affiliate of Insignia and now our affiliate commenced a tender offer pursuant to which it acquired 13,822 units (representing approximately 18.4% of the number outstanding) at a cash purchase price of $25 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-30 3275 Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-31 3276 - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 3277 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 3278 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 3279 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 3280 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 3281 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 3282 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 3283 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 3284 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 3285 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 3286 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 925 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 1.23% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 3287 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-43 3288 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 3289 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 3290 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 3291 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 3292 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Carlin Manor Apartments $ % $ Hunt Club Apartments Shadow Brook Apartments
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 3293 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per Class B unit.................................. $ ----------- Cash consideration per Class B unit......................... -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 3294 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Your partnership has never paid distributions with respect to your units. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 3295 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 3296 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $32.00 to $65.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 16,483 units (representing approximately 21.93% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. MULTI-BENEFIT REALTY FUND '87-1 REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(A) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $27.00 $30.00 Second Quarter............................................ 26.00 26.00 First Quarter............................................. 40.15 88.00(c) Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 4.00 15.00 Third Quarter............................................. 0.10 36.00 Second Quarter............................................ 20.00 20.00 First Quarter............................................. (b) (b) Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ (b) (b) Third Quarter............................................. 10.00 1.00 Second Quarter............................................ 8.00 10.00 First Quarter............................................. 10.00 10.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-52 3297 (b) No units were reported by the general partner as having been sold during the quarter. (c) The general partner has information that indicates that this reported sales price represented a single, isolated other minimal number of Class B units and such sales price was materially higher than the range of sales prices during the quarter. In addition, the general partner has information that indicates that an affiliate a lower price in that isolated transaction recently commenced a tender offer for up to 4.9% of the outstanding Class B units exactly 5% less than it paid in that isolated transaction. Excluding that isolated transaction, the purchase price is approximately the next highest sales price for other transactions during the six-month period prior to June 30, 1998. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Carlin Manor Apartments and Shadow Brook Apartments were appraised in 1996 by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with an initial financing of one property and a refinancing of the other property. According to the appraisal reports, the scope of the appraisals included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of each of the properties specified in those appraisal reports was $4,750,000 for Carlin Manor Apartments and $11,750,000 for Shadow Brook Apartments. A copy S-53 3298 of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with an offer to purchase up to 4.9% of the outstanding units commenced by an unaffiliated party in September 1998. That estimate of your partnership's net asset value per unit as of June 30, 1998 was $68. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of Class B units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of S-54 3299 Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any S-55 3300 deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use S-56 3301 of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-57 3302 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Distributable Cash from Operations (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2036. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease, sell, dispose of, conduct any business that may be lawfully conducted by finance and otherwise deal with your partnership's a limited partnership organized pursuant to the property. Your partnership's objectives are to (1) Delaware Revised Uniform Limited Partnership Act (as preserve and protect the limited partners' and amended from time to time, or any successor to such unitholders' invested capital by investing, either statute) (the "Delaware Limited Partnership Act"), alone or in association with others, in a diversified provided that such business is to be conducted in a portfolio of low or moderately-leveraged manner that permits AIMCO to be qualified as a REIT, income-producing properties, (2) provide quarterly cash unless AIMCO ceases to qualify as a REIT. The AIMCO distributions to certain unitholders, and, on an annual Operating Partnership is authorized to perform any and basis, excess cash distributions to certain all acts for the furtherance of the purposes and unitholders, generated by the properties, (3) provide business of the AIMCO Operating Partnership, provided gains through potential appreciation of the properties, that the AIMCO Operating Partnership may not take, or (4) build equity through reduction of mortgage loans refrain from taking, any action which, in the judgment and (5) diversify your partnership's investment risks. of its general partner could (i) adversely affect the Subject to restrictions contained in your partnership's ability of AIMCO to continue to qualify as a REIT, (ii) agreement of limited partnership, your partnership may subject AIMCO to certain income and excise taxes, or perform all acts necessary, advisable or convenient to (iii) violate any law or regulation of any governmental the business of your partnership including borrowing body or agency (unless such action, or inaction, is money and creating liens. 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.
S-58 3303 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 600,000 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. The general partner may No action or consent by the OP Unitholders is required not acquire properties in exchange for units. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may not purchase or lease funds or other assets to its subsidiaries or other property in which, or from a person in which the persons in which it has an equity investment, and such general partner or affiliate has an interest. persons may borrow funds from the AIMCO Operating Notwithstanding the foregoing and according to the Partnership, on terms and conditions established in the terms of your partnership's agreement of limited sole and absolute discretion of the general partner. To partnership, the general partner may purchase property the extent consistent with the business purpose of the in its own name and temporarily (for a period not to AIMCO Operating Partnership and the permitted exceed 180 days) hold title thereto for the purpose of activities of the general partner, the AIMCO Operating facilitating the acquisition of such property or the Partnership may transfer assets to joint ventures, borrowing of money or obtaining of financing for your limited liability companies, partnerships, partnership, or the completion of construction of the corporations, business trusts or other business property, or any other purpose related to the business entities in which it is or thereby becomes a of your partnership, provided that such property is participant upon such terms and subject to such purchased by your partnership for a price no greater conditions consistent with the AIMCO Operating Part- than the cost of such property to the general partner nership Agreement and applicable law as the general and provided there is no difference in interest rates partner, in its sole and absolute discretion, believes of the loans secured by the property at the time to be advisable. Except as expressly permitted by the acquired by the general partner and at the time AIMCO Operating Partnership Agreement, neither the acquired by your partnership, nor any other benefit to general partner nor any of its affiliates may sell, the arising out of such transaction apart from transfer or convey any property to the AIMCO Operating compensation otherwise permitted by your partnership's Partnership, directly or indirectly, except pursuant to agreement of limited partnership. Your partnership may transactions that are determined by the general partner not sell or lease property to the general partner or in good faith to be fair and reasonable. its affiliate except to the extent that your partnership enters into a joint venture with an affiliate. Your partnership may own or lease properties jointly or in partnership with others, including affiliates of the general partner, foreign or institutional-type investors, or syndications formed with such persons in accordance with the requirements set forth in your partnership's agreement of limited partnership. Your partnership may not make any loan to the general partner or affiliates. The general partner may not grant the general partner or an affiliate an exclusive right to sell or exclusive employment to sell assets for your partnership. Also, the general partner may not cause your partnership to enter any agreements with the general partner or its affiliates that are not subject to termination without penalty by either party upon not more than 60 days' written notice, except as specified under your partnership's agreement of limited partnership.
S-59 3304 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obligate and bind your partnership and to take such restrictions on borrowings, and the general partner has action as the general partner deems necessary or full power and authority to borrow money on behalf of advisable, including, without limitation, making, the AIMCO Operating Partnership. The AIMCO Operating executing and delivering loan agreements, mortgages, Partnership has credit agreements that restrict, among security agreements, promissory notes, documents other things, its ability to incur indebtedness. See related to mortgage-backed securities, and other "Risk Factors -- Risks of Significant Indebtedness" in documents as provided for in your partnership's the accompanying Prospectus. agreement of limited partnership. The total indebtedness of your partnership may not exceed 50% of the purchase price of all properties on a combined basis during the initial two-year period commencing upon the termination of the offering; provided, however, that thereafter, total indebtedness may not exceed 80% of the purchase price of the property. Your partnership may not incur any nonrecourse indebtedness wherein the lender will have or acquire at any time or as a result of making the loan, any direct or indirect interest in the profits, capital, or property of your partnership, other than as a secured creditor. Your partnership may not obtain financing which would be secured by a first mortgage on a property, unless the prior approval of the California Department of Corporations is obtained, if such mortgage provides for a balloon payment which becomes due sooner than the earlier of: (1) ten years from the acquisition date of the property or (2) three years beyond the anticipated holding period of the property provided in such case that the balloon payment may not become due sooner than seven years from the acquisition date of the property. Secondary financing, if any, must be fully amortizing or, if not fully amortizing, must not be due and payable during the expected holding period of the property. The foregoing restrictions do not apply with respect to any existing original financing, secondary financing in an amount equal to less than 10% of the purchase price of a property, or financing representing, in aggregate 25% or less of the total purchase price of the properties acquired. Your partnership may borrow funds using the properties as collateral.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner, upon reasonable request, to with a statement of the purpose of such demand and at inspect and copy during normal business hours the such OP Unitholder's own expense, to obtain a current register kept by your partnership which lists the list of the name and last known business, residence or names, addresses and business telephone numbers of all mailing address of the general partner and each other limited partners and the number of units owned by each OP Unitholder. limited partner. Upon request of a limited partner, the general partner will promptly mail to such limited partner a copy of the investor list. If the general partner neglects or refuses to mail a copy of the investor list as requested, the general partner may be liable to the limited requesting the list for the cost incurred by the limited partner in compelling the production of the list and for actual damages incurred by the limited partner.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner connection with the business of your partnership
S-60 3305 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP without the consent of the limited partners. No limited may not be removed by the OP Unitholders with or partner has any authority or right to act for or bind without cause. your partnership or participate in or have any control over your partnership business except as required by In addition to the powers granted a general partner of law. 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 Notwithstanding anything to the contrary set forth in partnership, except in the case of negligence or the AIMCO Operating Partnership Agreement, the general misconduct, the general partner and its affiliate or partner is not liable to the AIMCO Operating agents acting on their behalf are not liable, responsi- Partnership for losses sustained, liabilities incurred ble or accountable in damages or otherwise to your or benefits not derived as a result of errors in partnership (in any action, including a partnership judgment or mistakes of fact or law of any act or derivative suit) or to any of the limited partners for omission if the general partner acted in good faith. the doing of any act or the failure to do any act, the The AIMCO Operating Partnership Agreement provides for effect of which may cause or result in loss or damage indemnification of AIMCO, or any director or officer of to your partnership, if done in good faith to promote AIMCO (in its capacity as the previous general partner the best interests of your partnership. The general of the AIMCO Operating Partnership), the general partner and its affiliates or agents are entitled to partner, any officer or director of general partner or indemnification by your partnership from assets of your the AIMCO Operating Partnership and such other persons partnership, or as an expense of your partnership, but as the general partner may designate from and against not from the limited partners, against any liability or all losses, claims, damages, liabilities, joint or loss, as a result of any claim or legal proceeding several, expenses (including legal fees), fines, (whether or not the same proceeds to judgment or is settlements and other amounts incurred in connection settled or otherwise brought to a conclusion) relating with any actions relating to the operations of the to the performance or non-performance of any act AIMCO Operating Partnership, as set forth in the AIMCO concerning the activities of your partnership except in Operating Partnership Agreement. The Delaware Limited the case where the general partner or its affiliates or Partnership Act provides that subject to the standards agents are guilty of bad faith, negligence, misconduct and restrictions, if any, set forth in its partnership or reckless disregard of duty, provided such act or agreement, a limited partnership may, and shall have omission was done in good faith to promote the best the power to, indemnify and hold harmless any partner interests of your partnership. The indemnification or other person from and against any and all claims and authorized by your partnership's agreement of limited demands whatsoever. It is the position of the partnership includes the payment of reasonable Securities and Exchange Commission that indemnification attorneys' fees and other expenses (not limited to of directors and officers for liabilities arising under taxable costs) incurred in settling or defending any the Securities Act is against public policy and is claims, threatened action or finally adjudicated legal unenforceable pursuant to Section 14 of the Securities proceedings. Notwithstanding any other provision to the Act of 1933. contrary, the general partner, the corporate limited partner, any employee and any of its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction ap- proves a settlement of such claims. In any claim for indemnification for federal or state securities laws violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities laws violations.
S-61 3306 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. The general partner partner may not be removed as general partner of the may admit an additional or a substitute general partner AIMCO Operating Partnership by the OP Unitholders with with the consent of the limited partners owning a or without cause. Under the AIMCO Operating Partnership majority of the outstanding units. No limited partner Agreement, the general partner may, in its sole may substitute a transferee of his units in such discretion, prevent a transferee of an OP Unit from limited partner's place without the consent of the becoming a substituted limited partner pursuant to the general partner which may be withheld at the sole AIMCO Operating Partnership Agreement. The general discretion of the general partners. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to add to the representations, the general partner may, without the consent of the OP duties, or obligations of the general partner or its Unitholders, amend the AIMCO Operating Partnership affiliates or to surrender any rights or powers granted Agreement, amendments to the AIMCO Operating to the general partner or its affiliates for the Partnership Agreement require the consent of the benefit of the limited partners, to comply with holders of a majority of the outstanding Common OP applicable tax laws, to comply with federal and state Units, excluding AIMCO and certain other limited securities laws and to cure any ambiguities. Other exclusions (a "Majority in Interest"). Amendments to amendments to your partnership's agreement of limited the AIMCO Operating Partnership Agreement may be partnership must be approved by the limited partners proposed by the general partner or by holders of a owning more than 50% of the units. However, the limited Majority in Interest. Following such proposal, the partners may not amend your partnership's agreement of general partner will submit any proposed amendment to limited partnership (1) to extend the partnership term the OP Unitholders. The general partner will seek the or (2) to alter the rights of the general partner to written consent of the OP Unitholders on the proposed receive compensation, return of invested capital, amendment or will call a meeting to vote thereon. See allocations, and distributions, without the consent of "Description of OP Units -- Amendment of the AIMCO the general partner. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees Your general partner receives an annual fee equal to 9% The general partner does not receive compensation for of Distributable Cash From Operations received by the its services as general partner of the AIMCO Operating limited partners for its services as general partner Partnership. However, the general partner is entitled and may also receive reimbursement for expenses to payments, allocations and distributions in its incurred in such capacity. capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-62 3307 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under California law, a limited partner is not bound by Except for fraud, willful misconduct or gross the obligations of your partnership. A limited partner negligence, no OP Unitholder has personal liability for is liable only to make payments of his capital the AIMCO Operating Partnership's debts and contribution when due under your partnership's obligations, and liability of the OP Unitholders for agreement of limited partnership. After its capital the AIMCO Operating Partnership's debts and obligations contribution is fully paid, no limited partner will, is generally limited to the amount of their invest- except as otherwise required by applicable law, be ment in the AIMCO Operating Partnership. However, the required to make any further capital contributions or limitations on the liability of limited partners for lend any funds to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership and must at all times act in a its limited partners the highest duties of good faith, fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such limited partners. The general partner at all times has general partner from taking any action or engaging in a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement partner may assign some of its general partner expressly authorizes the general partner to enter into, functions to an affiliate; provided, however, that, on behalf of the AIMCO Operating Partnership, a right notwithstanding any such assignment, the general of first opportunity arrangement and other conflict partner will retain full responsibility to your avoidance agreements with various affiliates of the partnership for the satisfactory performance of all AIMCO Operating Partnership and the general partner, on partnership general partner duties. The general partner such terms as the general partner, in its sole and may not commingle funds of your partnership with any absolute discretion, believes are advisable. The AIMCO other person. Subject to its fiduciary duties, general Operating Partnership Agreement expressly limits the partner and its affiliates may engage in whatever liability of the general partner by providing that the activities they choose, whether the same are general partner, and its officers and directors will competitive with your partnership or otherwise, without not be liable or accountable in damages to the AIMCO having or incurring any obligation to offer any Operating Partnership, the limited partners or interest in such activities to your partnership or any assignees for errors in judgment or mistakes of fact or party hereto. The obligations of the parties are, law or of any act or omission if the general partner or therefore, limited solely to those arising from the such director or officer acted in good faith. See acquisition and holding of your partnership's "Description of OP Units -- Fiduciary Responsibilities" properties. in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-63 3308 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership; select law or by the AIMCO Operating its interest in the AIMCO Operating arbitration; and approve other mat- Partnership Agree- Part-
S-64 3309 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ters as otherwise provided in your ment, the affirmative vote or nership or the admission of a partnership's agreement of limited consent of holders of at least 50% successor general partner. partnership. Neither the limited of the outstanding Preferred OP partners nor the unitholders have Units will be necessary for Under the AIMCO Operating Partner- any right to vote on or approve effecting any amendment of any of ship Agreement, the general partner transactions in which the general the provisions of the Partnership has the power to effect the partner has an actual or potential Unit Designation of the Preferred acquisition, sale, transfer, conflict of interest; the sale, OP Units that materially and exchange or other disposition of exchange, financing, refinancing, adversely affects the rights or any assets of the AIMCO Operating or other disposition of proper- preferences of the holders of the Partnership (including, but not ties; or any other matter not Preferred OP Units. The creation or limited to, the exercise or grant specifically provided for in your issuance of any class or series of of any conversion, option, partnership's agreement of limited partnership units, including, privilege or subscription right or partnership. without limitation, any partner- any other right available in ship units that may have rights connection with any assets at any A general partner may cause the senior or superior to the Preferred time held by the AIMCO Operating dissolution of your partnership by OP Units, shall not be deemed to Partnership) or the merger, retiring. Your partnership may be materially adversely affect the consolidation, reorganization or continued by the remaining general rights or preferences of the other combination of the AIMCO partner or, if none, the limited holders of Preferred OP Units. With Operating Partnership with or into partners may agree to continue your respect to the exercise of the another entity, all without the partnership by electing a successor above described voting rights, each consent of the OP Unitholders. general partner upon the unanimous Preferred OP Units shall have one vote of the limited partners within (1) vote per Preferred OP Unit. The general partner may cause the a specified time. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such From Operations are to be made provided, however, that at any time portion as the general partner may during the fiscal year. The and from time to time on or after in its sole and absolute discretion distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by results and net sales or refinanc- adjust the annual distribution rate the AIMCO Operating Partnership ing proceeds available from the on the Preferred OP Units to the during such quarter to the general disposition of your partnership's lower of (i) % plus the annual partner, the special limited assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-65 3310 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS lative Preferred Stock. Such ferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights Units are not transferable, except There is no public market for the There is no public market for the upon death or by operation of law, Preferred OP Units and the OP Units. The AIMCO Operating Part- without the consent of the general Preferred OP Units are not listed nership Agreement restricts the partner which consent may be on any securities exchange. The transferability of the OP Units. withheld in the sole discretion of Preferred OP Units are subject to Until the expiration of one year the general partner. The general restrictions on transfer as set from the date on which an OP partner may consent to the forth in the AIMCO Operating Unitholder acquired OP Units, transfers provided that prospective Partnership Agreement. subject to certain exceptions, such transferee provides the general OP Unitholder may not transfer all partner with information as may be Pursuant to the AIMCO Operating or any portion of its OP Units to necessary or appropriate to deter- Partnership Agreement, until the any transferee without the consent mine suitability under applicable expiration of one year from the of the general partner, which securities laws, and such other date on which a holder of Preferred consent may be withheld in its sole information as the general partner OP Units acquired Preferred OP and absolute discretion. After the may request, and a fee imposed by Units, subject to certain expiration of one year, such OP the general partner in its sole exceptions, such holder of Unitholder has the right to discretion, unless any of the Preferred OP Units may not transfer transfer all or any portion of its following restrictions applies: (1) all or any portion of its Pre- OP Units to any person, subject to the transferee is not suitable ferred OP Units to any transferee the satisfaction of certain under applicable federal or state without the consent of the general conditions specified in the AIMCO securities laws, (2) the transferee partner, which consent may be Operating Partnership Agreement, is a nonresident alien or tax withheld in its sole and absolute including the general partner's exempt entity, (3) the transfer discretion. After the expiration of right of first refusal. See would cause the assets of your one year, such holders of Preferred "Description of OP Units -- partnership to be "plan assets" or OP Units has the right to transfer Transfers and Withdrawals" in the the transaction contemplated to be all or any portion of its Preferred accompanying Prospectus. prohibited under applicable ERISA OP Units to any person, subject to or corporate the satisfaction of
S-66 3311 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS laws, or (4) the transfer would certain conditions specified in the After the first anniversary of cause the termination of your AIMCO Operating Partnership Agree- becoming a holder of Common OP partnership under Federal tax laws. ment, including the general Units, an OP Unitholder has the A unitholder may not exchange a partner's right of first refusal. right, subject to the terms and unit for a limited partner in- conditions of the AIMCO Operating terest and/or become a substituted After a one-year holding period, a Partnership Agreement, to require limited partner without the consent holder may redeem Preferred OP the AIMCO Operating Partnership to of the general partner. In order to Units and receive in exchange redeem all or a portion of the transfer a limited partner therefor, at the AIMCO Operating Common OP Units held by such party interest, the general partner must Partnership's option, (i) subject in exchange for a cash amount based consent, which consent may be to the terms of any Senior Units, on the value of shares of Class A withheld in its sole discretion. A cash in an amount equal to the Common Stock. See "Description of limited partner, except as provided Liquidation Preference of the OP Units -- Redemption Rights" in in your partnership's agreement of Preferred OP Units tendered for the accompanying Prospectus. Upon limited partnership, may not sell, redemption, (ii) a number of shares receipt of a notice of redemption, transfer, encumber, or otherwise of Class I Cumulative Preferred the AIMCO Operating Partnership dispose, by operation of law or Stock of AIMCO that pay an may, in its sole and absolute otherwise, of the whole or any part aggregate amount of dividends yield discretion but subject to the of his interest in your partnership equivalent to the distributions on restrictions on the ownership of except by written instrument, the Preferred OP Units tendered for Class A Common Stock imposed under accompanied by such assurance of redemption and are part of a class AIMCO's charter and the transfer the genuineness and effectiveness or series of preferred stock that restrictions and other limitations of each such signature and the is then listed on the New York thereof, elect to cause AIMCO to obtaining of any federal and/or Stock Exchange or another national acquire some or all of the tendered state governmental approval, if securities exchange, or (iii) a Common OP Units in exchange for any, as may be reasonably required number of shares of Class A Common Class A Common Stock, based on an by the general partner. Stock of AIMCO that is equal in exchange ratio of one share of Additionally, the proposed transfer Value to the Liquidation Preference Class A Common Stock for each Com- must in all cases be registered of the Preferred OP Units tendered mon OP Unit, subject to adjustment under the Securities Act of 1933, for redemption. The Preferred OP as provided in the AIMCO Operating or an exemption from such Units may not be redeemed at the Partnership Agreement. registration shall be available, as option of the AIMCO Operating reflected in an opinion of counsel Partnership. See "Description of satisfactory in form and substance Preferred OP Units -- Redemption." to the general partner. No partner may make any assignment of all or any part of his interest in your partnership if the said transfer or assignment would, when considered with all other transfers during the same applicable 12-month period, cause a termination of your partnership for federal or any applicable state income tax purposes. Such transferee may be substituted as a limited partner if, in addition to the above requirements: (1) the assignor designates such intention in the instrument of assignment, (2) the written consent of the general partner to such substitution is obtained, which consent, in the general partner's absolute discretion, may be withheld, (3) the assignment instrument is in form and substance satisfactory to the general partner, (4) the assignor and assignee duly execute and acknowledge such other instrument or instruments as the general partner may deem necessary or desirable and (5) the assignee accepts, adopts and approves in writing all of the terms and provisions of your partnership's agreement of limited partnership.
S-67 3312 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 3313 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 3314 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 3315 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 3316 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 3317 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 3318 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 3319 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 3320 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 9% of Distributable Cash from Operations (as that term is defined in your partnership's agreement of limited partnership) and may also receive reimbursement for expenses incurred in such capacity. The general partner received fees and reimbursements totaling $219,000 in 1996, $247,000 in 1997 and $87,000 for the first six months of 1998. The property manager received management fees of $240,000 in 1996, $248,000 in 1997 and $128,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 3321 YOUR PARTNERSHIP GENERAL Multi-Benefit Realty Fund '87-1 was organized on September 8, 1986, under laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Carlin Manor Apartments, a 278-unit complex in Columbus, Ohio; Hunt Club Apartments, a 200-unit complex in Indianapolis, Indiana; and Shadow Brook Apartments, a 300-unit complex in West Valley City, Utah. The general partner of your partnership is ConCap Equities, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 96,284 units of limited partnership interest issued and outstanding, which were held of record by 905 limited partners and 75,152 Class B units of limited partnership units outstanding which were held by 1,003 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated December 10, 1986, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fifth year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2036, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the S-77 3322 partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, except in the case of negligence or misconduct, the general partner and its affiliate or agents acting on their behalf are not liable, responsible or accountable in damages or otherwise to your partnership (in any action, including a partnership derivative suit) or to any of the limited partners for the doing of any act or the failure to do any act, the effect of which may cause or result in loss or damage to your partnership, if done in good faith to promote the best interests of your partnership. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates or agents are entitled to be indemnification by your partnership from assets of your partnership, or as an expense of your partnership, but not from the limited partners, against any liability or loss, as a result of any claim or legal proceeding, whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion) relating to the performance or non-performance of any act concerning the activities of your partnership except in the case where the general partner or its affiliates or agents are guilty of bad faith, negligence, misconduct or reckless disregard of duty, provided such act or omission was done in good faith to promote the best interests of your partnership. The indemnification authorized by your partnership's agreement of limited partnership includes the payment of reasonable attorneys' fees and other expenses (not limited to taxable costs) incurred in settling or defending any claims, threatened action or finally adjudicated legal proceedings. Expenses incurred in defending a civil or criminal action, suit, or proceeding may be paid by your partnership in advance of the final disposition of such action, suit, or proceeding as authorized by your partnership in the specific action if the action relates to your performance of duties or services on behalf of your partnership, your partnership receives an undertaking by or on behalf of the person indemnified to repay such amount to your partnership unless it is ultimately determined that such person is entitled to be indemnified by your partnership as authorized in your partnership's agreement of limited partnership. Notwithstanding any other provision to the contrary, the general partner, the corporate limited partner, any employee and any of its affiliates will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities S-78 3323 laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. No partnership funds will be used to purchase any insurance, other than public liability insurance, which insures any party against any liability the indemnification of which is prohibited under your partnership's agreement of limited partnership. DISTRIBUTIONS No distributions have been paid on your units since January 1, 1995. The original costs per unit was $ . BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 43.96% interest in your partnership as general partner of your partnership. Except as set forth herein, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $142,000 1995........................................................ 202,000 1996........................................................ 219,000 1997........................................................ 247,000 1998 (through June 30)...................................... 87,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $112,000 1995........................................................ 223,000 1996........................................................ 240,000 1997........................................................ 248,000 1998 (through June 30)...................................... 128,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 3324 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 3325 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Multi-Benefit Realty Fund '87-1 appearing in Multi-Benefit Realty Fund '87-1 Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 3326 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding Class B limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3327 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3328 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3329 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3331
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3332
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3333
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3334 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3335 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF NATIONAL PROPERTY INVESTORS 8 IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3336 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of National Property Investors 8....................... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-66 General...................................... S-66 Ranking...................................... S-66 Distributions................................ S-66 Allocation................................... S-67 Liquidation Preference....................... S-67 Redemption................................... S-68 Voting Rights................................ S-68 Restrictions on Transfer..................... S-68 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-69 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-71 CONFLICTS OF INTEREST.......................... S-74 Conflicts of Interest with Respect to the Offer...................................... S-74 Conflicts of Interest that Currently Exist for Your Partnership....................... S-74 Competition Among Properties................. S-74 Features Discouraging Potential Takeovers.... S-74 Future Exchange Offers....................... S-74 YOUR PARTNERSHIP............................... S-75 General...................................... S-75
i 3337
PAGE ---- Additional Information Concerning Your Partnership................................ S-75 Originally Anticipated Term of the Partnership................................ S-75 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-75 Property Management.......................... S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions................................ S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3338 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in National Property Investors 8. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in NPI Equity Investments, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3339 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3340 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $33.08 per unit for the year ended December 30, 1997 (equivalent to $ on an annualized basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3341 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $110.00 per unit to $300.00 per unit from April 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 3342 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3343 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3344 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3345 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $110.00 per unit to $300.00 per unit from April 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 3346 and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 3347 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 3348 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 3349 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 38.5% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 3350 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 3351 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 3352 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 3353 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 3354 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $110.00 to $300.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 3355 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 4% of Adjusted Cash From Operations (as that term is defined in your partnership's agreement of limited partnership), provided that the limited partners have received 5% of their capital investment computed annually. The general partner may also receive reimbursement for expenses incurred in such capacity. Your general partner has received fees and reimbursements totaling $53,000 for the first six months of 1998. The property manager received management fees of $120,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP National Property Investors 8 was organized on June 1, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Williamsburg on the Lake Apartments, a 460-unit complex S-18 3356 in Indianapolis, Indiana; and Huntington Apartments, a 212-unit complex in Morrisville, North Carolina. The general partner of your partnership is NPI Equity Investments, Inc., which is a majority-owned subsidiary of AIMCO. The property manager who is a majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 44,882 units of limited partnership interest issued and outstanding, which were held of record by 1,438 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3357 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3358
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3359 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3360
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3361 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3362 SUMMARY FINANCIAL INFORMATION OF NATIONAL PROPERTY INVESTORS 8 The summary financial information of National Property Investors 8 for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for National Property Investors 8 for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. NATIONAL PROPERTY INVESTORS 8
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 2,432 $ 2,241 $ 4,812 $ 4,627 $ 4,628 Net Income (Loss)........................................... 182 (19) 117 (136)(A) (143) Net Income (Loss) per limited partnership unit.............. 4.01 (0.42) 2.58 (3.20) (3.16) Distributions per limited partnership unit.................. -- 0.16 33.08 -- --
JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $14,543 $15,227 $14,952 $15,621 $15,713 Total Assets................................................ 17,994 19,198 17,869 19,483 18,702 Notes Payable............................................... 10,892 10,954 10,924 10,983 10,371 Partners' Capital (Deficit)................................. 6,410 7,584 6,228 7,611 7,756
- --------------- (A) Loss before extraordinary item COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING NATIONAL PROPERTY PARTNERSHIP INVESTORS 8 ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0 $33.08
S-25 3363 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $110.00 per unit to $300.00 per unit from April 1, 1997 to September 30, 1998. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to S-26 3364 remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your S-27 3365 partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $33.08 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your S-28 3366 partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the property manager who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 38.5% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 3367 Previous Tender Offers We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 3368 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 3369 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 3370 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 5 units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-33 3371 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 3372 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 3373 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 3374 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 3375 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 3376 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 3377 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 3378 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 243 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately 0.54% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 3379 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 3380 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (excluding your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the Complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 3381 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 3382 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 3383 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 3384 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Williamsburg on the Lake Apartments....................... $ % $ Huntington Apartments..............
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 3385 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 3386 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the year ended December 31, 1997 were $33.08 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 3387 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 3388 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $110.00 to $300.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 1,477 units (representing approximately 3.29% of the total outstanding units) was transferred in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from April 1, 1997 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. NATIONAL PROPERTY INVESTORS 8 REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ----------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $134.00 $300.00 Second Quarter............................................ 140.00 189.00 First Quarter............................................. 164.00 250.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 100.00 206.00 Third Quarter............................................. 200.00 206.00 Second Quarter............................................ 110.00 230.10
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are S-51 3389 the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Huntington Apartments was appraised in 1995, by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a refinancing of the property. According to the appraisal report, the scope of the appraisal included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in that appraisal report was $11,800,000. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-52 3390 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-53 3391 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-54 3392 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-55 3393 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 3394 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under California law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Adjusted Cash From Operations (as defined of the AIMCO Operating Partnership's agreement of in your partnership's agreement of limited partner- limited partnership (the "AIMCO Operating Partnership ship). The termination date of your partnership is Agreement") or as provided by law. See "Description of December 31, 2008. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to invest in, hold and The purpose of the AIMCO Operating Partnership is to manage existing income-producing residential real conduct any business that may be lawfully conducted by estate and, to a lesser extent, existing operating a limited partnership organized pursuant to the commercial real estate. Your partnership may enter into Delaware Revised Uniform Limited Partnership Act (as ventures, partnerships, and other business arrangements amended from time to time, or any successor to such with respect to real estate deemed prudent by your statute) (the "Delaware Limited Partnership Act"), general partner in order to achieve successful provided that such business is to be conducted in a operations for the partnership, provided such manner that permits AIMCO to be qualified as a REIT, arrangements are not in violation of your partnership's unless AIMCO ceases to qualify as a REIT. The AIMCO agreement of limited partnership. 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.
S-57 3395 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 150,000 units for time to the limited partners and to other persons, and cash to selected persons who fulfill the requirements to admit such other persons as additional limited set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. However, after the date on No action or consent by the OP Unitholders is required which the offering sold pursuant to the prospectus of in connection with the admission of any additional OP your partnership is closed, the general partner is Unitholder. See "Description of OP Units -- Management prohibited from admitting any additional limited by the AIMCO GP" in the accompanying Prospectus. partners. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your general partner may not enter into a funds or other assets to its subsidiaries or other contract with your partnership that would bind the persons in which it has an equity investment, and such partnership after the removal of the general partner. persons may borrow funds from the AIMCO Operating Your general partner may not grant itself or an Partnership, on terms and conditions established in the affiliate an exclusive listing for the sale or sole and absolute discretion of the general partner. To partnership assets, purchase or lease real property the extent consistent with the business purpose of the from the partnership, or sell or lease real property in AIMCO Operating Partnership and the permitted which the general partner has an interest to the activities of the general partner, the AIMCO Operating partnership. Your general partner may not cause your Partnership may transfer assets to joint ventures, partnership to enter into any contract with the general limited liability companies, partnerships, partner to construct or develop properties or to render corporations, business trusts or other business any services in connection with such construction or entities in which it is or thereby becomes a development. Your partnership may not lend money to the participant upon such terms and subject to such general partner and the general partner may not make conditions consistent with the AIMCO Operating Part- long-term secured or unsecured loans to your nership Agreement and applicable law as the general partnership or provide financing in any manner except partner, in its sole and absolute discretion, believes that it may make wrap-around notes and mortgages if to be advisable. Except as expressly permitted by the certain conditions are satisfied. Your partnership may AIMCO Operating Partnership Agreement, neither the not receive any insurance brokerage fee for any policy general partner nor any of its affiliates may sell, governing the general partner or the properties or transfer or convey any property to the AIMCO Operating receive any commission or fee for the placement of Partnership, directly or indirectly, except pursuant to mortgage loans or trust deed loans on your transactions that are determined by the general partner partnership's property. Your partnership may not enter in good faith to be fair and reasonable. into any agreement with the general partner or its affiliates which are not subject to termination without penalty by either party upon not more than sixty days' written notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among your partnership. The general partner may not pledge or other things, its ability to incur indebtedness. See encumber substantially all of the assets of your "Risk Factors -- Risks of Significant Indebtedness" in partnership at one time, other than in connection with the accompanying Prospectus. the acquisition or improvement of assets or the refinancing of previous obligations. Your partnership may not incur any non-recourse indebtedness wherein the lender will have or acquire, at any time as a result of making the loan, any direct or indirect interest in the profits, capital or
S-58 3396 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP property of your partnership other than as a secured creditor. Your partnership may not incur indebtedness which exceeds the sum of (1) 80% of the aggregate purchase price as to all the properties which have not been refinanced and (2) 80% of the aggregate value as determined by the lender as of the date of refinancing as to all properties which have been refinanced. Except in limited circumstances, your partnership may not incur mortgage financing which represents 25% or more of the total purchase price of the property acquired which, with level payments, would amortize such financing over a period in excess of thirty years. All such financing, including all-inclusive and wrap- around loans and interest-only loans, must provide that no balloon payments will become due sooner than the earlier of: (1) ten years from the date your partnership acquired the property or (2) two years beyond the anticipated holding period of your property; provided in such case that a balloon payment may not become due sooner than seven years from the date your partnership acquires the property.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand provides that a limited partner upon written request, with a statement of the purpose of such demand and at after payment of the reasonable expense of duplication such OP Unitholder's own expense, to obtain a current and for any proper purpose, will be sent a copy of the list of the name and last known business, residence or certificate or certificates of limited partnership mailing address of the general partner and each other containing the most recent listing of limited partner OP Unitholder. names, addresses and capital contributions.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have your partnership's agreement of limited partnership, the right to vote on certain matters described under the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may connection with the business of your partnership not be removed by the OP Unitholders with or without without the consent of the limited partners. No limited cause. partner has any authority or right to act for or bind your partnership or participate in or have any control In addition to the powers granted a general partner of over your partnership business except as required by a limited partnership under applicable law or that are law. 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.
S-59 3397 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Liability and Indemnification Your partnership's agreement of limited partnership Notwithstanding anything to the contrary set forth in does not limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general your partnership or the limited partners for acts done partner is not liable to the AIMCO Operating on behalf of your partnership. Your general partner and Partnership for losses sustained, liabilities incurred any of its affiliates are entitled to indemnification or benefits not derived as a result of errors in for any liability, loss or damage incurred by them or judgment or mistakes of fact or law of any act or by the partnership by reason of any act performed or omission if the general partner acted in good faith. omitted to be performed by them in connection with the The AIMCO Operating Partnership Agreement provides for business of the partnership, including costs and indemnification of AIMCO, or any director or officer of attorney's fees and any amounts expended in the AIMCO (in its capacity as the previous general partner settlements of any claims of liability provided that if of the AIMCO Operating Partnership), the general such liability arises out of any action or inaction of partner, any officer or director of general partner or the general partner such conduct did not constitute the AIMCO Operating Partnership and such other persons fraud, negligence or misconduct by the general partner. as the general partner may designate from and against All judgments against the partnership and the general all losses, claims, damages, liabilities, joint or partner, wherein the general partner is entitled to several, expenses (including legal fees), fines, indemnification, must first be satisfied from settlements and other amounts incurred in connection partnership assets before the general partner is with any actions relating to the operations of the responsible for these obligations. Notwithstanding the AIMCO Operating Partnership, as set forth in the AIMCO above paragraph, neither the general partner, nor any Operating Partnership Agreement. The Delaware Limited affiliate of the general partner will be indemnified Partnership Act provides that subject to the standards from any liability incurred by them in connection with and restrictions, if any, set forth in its partnership any claim or settlement involving allegations that the agreement, a limited partnership may, and shall have securities laws were violated by the general partner or the power to, indemnify and hold harmless any partner by any such other person unless a court of law which is or other person from and against any and all claims and advised as to the current position of any relevant demands whatsoever. It is the position of the regulatory agencies regarding indemnification Securities and Exchange Commission that indemnification specifically (1) approves indemnification of the of directors and officers for liabilities arising under settlement and finds that the related costs should be the Securities Act is against public policy and is made, or (2) approves indemnification of litigation unenforceable pursuant to Section 14 of the Securities costs if a successful defense is made. Act of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning a majority of the partner may not be removed as general partner of the outstanding units. No limited partner may substitute a AIMCO Operating Partnership by the OP Unitholders with transferee of his units in such limited partner's place or without cause. Under the AIMCO Operating Partnership without the consent of the general partner which may be Agreement, the general partner may, in its sole withheld at the sole discretion of the general partner. discretion, prevent a transferee of an 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 Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners (1) to reflect the addition or the general partner may, without the consent of the OP substitution of limited partners or the reduction of Unitholders, amend the AIMCO Operating Partnership the capital accounts upon the return of capital to Agreement, amendments to the AIMCO Operating partners; (2) to add to the representations, duties or Partnership Agreement require the consent of the obligations of the general partner or affiliates or holders of a majority of the outstanding Common OP surrender any right or power granted to the general Units, excluding AIMCO and certain other limited partner or its affiliates herein, for the benefit of exclusions (a "Majority in Interest"). Amendments to the limited partners; (3) to cure any ambiguity, to the AIMCO Operating Partnership Agreement may be correct or supplement any provision herein which may be proposed by the general partner or by holders of a inconsistent with any other provision herein, or to add Majority in Interest. Following such proposal, the any other provisions with respect to matters or general partner will submit any proposed amendment to questions arising under your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership; (4) to delete or add any provision written consent of the OP Unitholders on the proposed from or to your partnership's agreement of amend-
S-60 3398 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP limited partnership requested to be so deleted or added ment or will call a meeting to vote thereon. See by any Federal or state regulatory agency, which is "Description of OP Units -- Amendment of the AIMCO deemed by such agency to be for the benefit of the Operating Partnership Agreement" in the accompanying limited partners; (5) to change the name of the Prospectus. partnership to any lawful name which it may select; (6) to make modifications as is necessary to (a) cause the allocations and distributions to have substantial economic effect in accordance with section 704 of the code or (b) cause the provisions of the partnership's agreement of limited partnership to comply with any applicable law passed since your partnership's creation; and (7) to make any amendments that the general partner reasonably believes are appropriate to maintain the status of the partnership as a pass-through entity for tax purposes. Other amendments to your partnership's agreement of limited partner- ship must be approved by a majority vote of the limited partners.
Compensation and Fees Your general partner receives an annual fee equal to 4% The general partner does not receive compensation for of Adjusted Cash for Operations, provided that the its services as general partner of the AIMCO Operating limited partners have received 5% of their capital Partnership. However, the general partner is entitled investment computed annually. Your general partner may to payments, allocations and distributions in its also receive reimbursement for expenses incurred in capacity as general partner of the AIMCO Operating such capacity. Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations your partnership's agreement of limited partnership. is generally limited to the amount of their invest- After its capital contribution is fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner will, except as otherwise required by limitations on the liability of limited partners for applicable law, be required to make any further capital the obligations of a limited partnership have not been contributions or lend any funds to your partnership. clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, your general partner has a fiduciary duty partnership agreement, Delaware law generally requires to safeguard the funds of the partnership and a general partner of a Delaware limited partnership to partnership funds may not be commingled with the funds adhere to fiduciary duty standards under which it owes of any other person except as provided in the partner- its limited partners the highest duties of good faith, ship agreement. Your general partner may engage in or fairness and loyalty and which generally prohibit such possess an interest in any other business or venture of general partner from taking any action or engaging in every nature and description, independently or with any transaction as to which it has a conflict of others, including the ownership, financing, leasing, interest. The AIMCO Operating Partnership Agreement operation, management, brokerage and development of expressly authorizes the general partner to enter into, real property. on behalf of the AIMCO Operating
S-61 3399 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-62 3400 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; extend the term of Prospectus. So long as any institution of bankruptcy your partnership; remove or elect a Preferred OP Units are outstand- proceedings, an assignment for the general partner; and approve or ing, in addition to any other vote benefit of creditors and certain disapprove the sale or en- or consent of partners required by transfers by the general partner of cumbrance of all or substantially law or by the AIMCO Operating its interest in the AIMCO Operating all of the assets of your Partnership Agreement, the Partnership or the admission of a partnership in a single affirmative vote or consent of successor general partner. transaction. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. Your partnership may be of the Partnership Unit Desig- acquisition, sale, transfer, continued by the remaining general nation of the Preferred OP Units exchange or other disposition of partner or, if none, the limited that materially and adversely any assets of the AIMCO Operating partners may agree to continue your affects the rights or preferences Partnership (including, but not partnership by electing a successor of the holders of the Preferred OP limited to, the exercise or grant general partner upon the vote of Units. The creation or issuance of of any conversion, option, the limited partners owning a any class or series of partnership privilege or subscription right or majority of the units within 120 units, including, without any other right available in days after the retirement of the limitation, any partnership units connection with any assets at any general partner. that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in
S-63 3401 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations, sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and from time to time on or after in its sole and absolute discretion results and net sales or the fifth anniversary of the issue determine, of Available Cash (as refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by partnership's assets. adjust the annual distribution rate the AIMCO Operating Partnership on the Preferred OP Units to the during such quarter to the general lower of (i) % plus the annual partner, the special limited interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior liability of AIMCO. See
S-64 3402 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Units, nor shall any Junior Units "Description of OP be redeemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign five There is no public market for the There is no public market for the or more whole units by a written Preferred OP Units and the OP Units. The AIMCO Operating Part- instrument in accordance with your Preferred OP Units are not listed nership Agreement restricts the partnership's agreement of limited on any securities exchange. The transferability of the OP Units. partnership, unless such assignment Preferred OP Units are subject to Until the expiration of one year or transfer would be in violation restrictions on transfer as set from the date on which an OP of any applicable laws or result in forth in the AIMCO Operating Unitholder acquired OP Units, the termination of your partnership Partnership Agreement. subject to certain exceptions, such for tax purposes. In order for an OP Unitholder may not transfer all assignee to become a substituted Pursuant to the AIMCO Operating or any portion of its OP Units to limited partner the following Partnership Agreement, until the any transferee without the consent conditions must first be satisfied: expiration of one year from the of the general partner, which (1) the filing with the partnership date on which a holder of Preferred consent may be withheld in its sole of a written instrument of OP Units acquired Preferred OP and absolute discretion. After the assignment covering no less than Units, subject to certain expiration of one year, such OP five units; (2) the execution by exceptions, such holder of Unitholder has the right to the assignor and assignee of any Preferred OP Units may not transfer transfer all or any portion of its other documentation required or all or any portion of its Pre- OP Units to any person, subject to requested by the general partner; ferred OP Units to any transferee the satisfaction of certain (3) the written consent of the without the consent of the general conditions specified in the AIMCO general partner is obtained; and partner, which consent may be Operating Partnership Agreement, (4) a transfer fee covering all withheld in its sole and absolute including the general partner's reasonable expenses connected with discretion. After the expiration of right of first refusal. See such substitution is paid to the one year, such holders of Preferred "Description of OP Units -- partnership. OP Units has the right to transfer Transfers and Withdrawals" in the all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of certain After the first anniversary of conditions specified in the AIMCO becoming a holder of Common OP Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO Operating Partnership Agreement, to require After a one-year holding period, a the AIMCO Operating Partnership to holder may redeem Preferred OP redeem all or a portion of the Units and receive in exchange Common OP Units held by such party therefor, at the AIMCO Operating in exchange for a cash amount based Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-65 3403 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-66 3404 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-67 3405 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-68 3406 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-69 3407 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-70 3408 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-71 3409 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-72 3410 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-73 3411 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 4% of Adjusted Cash From Operations (as that term is defined in your partnership's agreement of limited partnership), provided that the limited partners have received 5% of their capital investment computed annually. The general partner may also receive reimbursement for expenses incurred in such capacity. Your general partner has received fees and reimbursements totaling $307,000 in 1996, $213,000 in 1997 and $53,000 for the first six months of 1998. The property manager received management fees of $228,000 in 1996, $233,000 in 1997 and $120,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans S-74 3412 may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. YOUR PARTNERSHIP GENERAL National Property Investors 8 was organized on June 1, 1984, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Williamsburg on the Lake Apartments, a 460-unit complex in Indianapolis, Indiana; and Huntington Apartments, a 212-unit complex in Morrisville, North Carolina. The general partner of your partnership is NPI Equity Investments, Inc., which is a majority-owned subsidiary of AIMCO. The property manager who is a majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 44,882 units of limited partnership interest issued and outstanding, which were held of record by 1,438 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP In a prospectus dated May 31, 1998, your general partner (then not affiliated with us) indicated that most sales of properties would occur within five to ten years after acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating S-75 3413 current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Your partnership does not limit the liability of the general partner or its affiliates to your partnership or the limited partners for acts undertaken on behalf of your partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Your general partner and any of its affiliates are entitled to indemnification for any liability, loss or damage incurred by them or by the partnership by reason of any act performed or omitted to be performed by them in connection with the business of the partnership, including costs and attorney's fees and any amounts expended in the settlements of any claims of liability provided that if such liability arises out of any action or inaction of the general partner such conduct did not constitute fraud, negligence or misconduct by the general partner. All judgments against the partnership and the general partner, wherein the general partner is entitled to indemnification, must first be satisfied from partnership assets before the general partner is responsible for these obligations. Notwithstanding the above paragraph, neither the general partner, nor any affiliate of the general partner or the partnership, will be indemnified from any liability incurred by them in connection with any claim or settlement involving allegations that the securities laws were violated by the general partner or by any such other person unless a court of law which is advised as to the current position of any relevant regulatory agencies regarding indemnification specifically (a) approves indemnification of the settlement and finds that the related costs should be made, or (b) approves indemnification of litigation costs if a successful defense is made. Your partnership may not incur the cost of that portion of any liability insurance which insures the general partner for any liability as to which indemnification is prohibited pursuant to your partnership's agreement of limited partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $500.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 33.08 January 1, 1998 - June 30, 1998............................. 0.00
S-76 3414 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 38.5% interest in your partnership, including 16,997 units held by us and the interest held by your general partner in your partnership. AIMCO and its affiliates have engaged in the following transactions in units of your partnership within the past 60 days. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $232,000 1995........................................................ 231,000 1996........................................................ 307,000 1997........................................................ 213,000 1998 (through June 30)...................................... 53,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ---- 1994........................................................ $213,000 1995........................................................ 222,000 1996........................................................ 228,000 1997........................................................ 233,000 1998 (through June 30)...................................... 120,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 3415 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of National Property Investors 8 appearing in National Property Investors 8 Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 3416 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3417 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3418 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3419 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3420
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3421
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3422
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3423
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3424 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3425 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF RIVERSIDE PARK ASSOCIATES L.P. IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in one apartment property to holding an interest in our large portfolio of properties. In the future, the property owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3426 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Riverside Park Associates Limited Partnership........ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-51 STANGER ANALYSIS............................... S-52 Experience of Stanger........................ S-52 Summary of Materials Considered.............. S-52 Summary of Reviews........................... S-53 Conclusions.................................. S-54 Assumptions, Limitations and Qualifications............................. S-54 Compensation and Material Relationships...... S-55 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-56 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-61 DESCRIPTION OF PREFERRED OP UNITS.............. S-65 General...................................... S-65 Ranking...................................... S-65 Distributions................................ S-65 Allocation................................... S-66 Liquidation Preference....................... S-66 Redemption................................... S-67 Voting Rights................................ S-67 Restrictions on Transfer..................... S-67 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-68 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-70 CONFLICTS OF INTEREST.......................... S-73 Conflicts of Interest with Respect to the Offer...................................... S-73 Conflicts of Interest that Currently Exist for Your Partnership....................... S-73 Competition Among Properties................. S-73 Features Discouraging Potential Takeovers.... S-73 Future Exchange Offers....................... S-73 YOUR PARTNERSHIP............................... S-74 General...................................... S-74
i 3427
PAGE ---- Additional Information Concerning Your Partnership................................ S-74 Originally Anticipated Term of the Partnership................................ S-74 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-74 Property Management.......................... S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-75 Distributions................................ S-75 Beneficial Ownership of Interests in Your Partnership................................ S-76 Compensation Paid to the General Partner and its Affiliates............................. S-76
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-76 LEGAL MATTERS.................................. S-77 EXPERTS........................................ S-77 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3428 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Riverside Park Associates Limited Partnership. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in a general partner of Winthrop Financial Associates, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3429 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3430 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $2,500.00 per unit for year ended December 31, 1997. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in one property to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3431 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. S-4 3432 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of a 1/2 unit. You may tender less than 1/2 unit only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3433 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3434 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3435 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. The general partner of your partnership is unaware of any secondary market activity in the units. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 3436 and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 3437 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 3438 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 3439 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 34.3% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 3440 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 3441 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 3442 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 3443 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 3444 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ Not Available Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 3445 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to $110,000 beginning in 1988, increasing annually at the rate of 6%. The general partner may also receive reimbursement for expenses incurred in such capacity. Your partnership paid the general partner $134,000 for reimbursements and expenses for the first six months of 1998. The property manager received management fees of $218,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Riverside Park Associates Limited Partnership was organized on May 14, 1986, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of a single apartment complex: Riverside Park, a 1,222-unit complex in Fairfax County, Virginia. The general partner of your partnership is Winthrop Financial Associates, L.P. A general partner of Winthrop Financial Associates is a majority-owned subsidiary of AIMCO. The property manager who is a majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 568.29 units of limited partnership interest issued and outstanding, which S-18 3446 were held of record by 666 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3447 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3448
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3449 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3450
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3451 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3452 SUMMARY FINANCIAL INFORMATION OF RIVERSIDE PARK ASSOCIATES L.P. The summary financial information of Riverside Park Associates L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Riverside Park Associates L.P. for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. RIVERSIDE PARK ASSOCIATES L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, -------------------- ------------------------------------ 1998 1997 1997 1996 1995 -------- --------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues............................................ $ 5,491 $ 5,499 $ 10,939 $ 10,462 $ 10,539 Net Income (Loss)......................................... (545) (281) (1,034) (1,553) (1,643) Net Income (Loss) per limited partnership unit............ (935.00) (482.00) (1,772.00) (2,661.00) (2,816.00) Distributions per limited partnership unit................ -- 2,500.00 2,500.00 13,500.00 1,000.00
JUNE 30, DECEMBER 31, -------------------- ------------------------------------ 1998 1997 1997 1996 1995 -------- --------- ---------- ---------- ---------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $ 40,622 $ 42,461 $ 41,538 $ 43,590 $ 45,834 Total Assets.............................................. 45,372 46,950 45,783 48,647 49,301 Notes Payable............................................. 45,834 46,451 46,157 46,737 38,114 Partners' Capital (Deficit)............................... (1,961) (663) (1,416) 1,077 10,372
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING RIVERSIDE PARK ASSOCIATES PARTNERSHIP L.P. ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $2,500.00
S-25 3453 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's property by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the S-26 3454 property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages one property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. S-27 3455 UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for fiscal year ended December 31, 1997 were $2,500.00 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 3456 RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). IPT is a general partner of the general partner of your partnership. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the property owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 34.25% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 3457 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 3458 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 3459 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 3460 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 1/2 a unit. You may tender less than 1/2 a unit only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 3461 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 3462 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 3463 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 3464 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 3465 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 3466 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 3467 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 3468 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to S-41 3469 delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. S-42 3470 On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (excluding your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed on behalf of the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 3471 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 3472 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 3473 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 3474 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------------- ---------------- -------------- -------------- Riverside Park $ % $
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 3475 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 3476 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for fiscal year ended December 31, 1997 were $2,500. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 3477 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 3478 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $
Prices on Secondary Market There is no active market for the units. The general partner of your partnership is unaware of any secondary market activity in the units. Therefore, any comparison to prices on the secondary market is not possible at the present time. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-51 3479 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's property provided by management, including location, number of units and unit mix or square footage, age, and amenity; (iv) reviewed summary historical operating statements for your partnership's property for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar property in the general market area of your partnership's property and other information relating to acquisition criteria for S-52 3480 similar property; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing property were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-53 3481 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-54 3482 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-55 3483 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. Form of Organization and Assets Owned
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Income (as defined in your of the AIMCO Operating Partnership's agreement of partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, improve, The purpose of the AIMCO Operating Partnership is to maintain, operate, lease, sell, dispose of and conduct any business that may be lawfully conducted by otherwise deal with the property, together with such a limited partnership organized pursuant to the other activities as may be necessary, advisable or Delaware Revised Uniform Limited Partnership Act (as convenient to the business of your partnership. Subject amended from time to time, or any successor to such to restrictions contained in your partnership's statute) (the "Delaware Limited Partnership Act"), agreement of limited partnership, your partnership may provided that such business is to be conducted in a perform all acts necessary, advisable or convenient to manner that permits AIMCO to be qualified as a REIT, the business of your partnership including borrowing unless AIMCO ceases to qualify as a REIT. The AIMCO money and creating liens. 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.
S-56 3484 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 566 units for cash time to the limited partners and to other persons, and and notes to selected persons who fulfill the to admit such other persons as additional limited requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital of limited partnership. The capital contribution need contributions as may be established by the general not be equal for all limited partners and no action or partner in its sole discretion. The net capital consent is required in connection with the admission of contribution need not be equal for all OP Unitholders. any additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP The general partners may, without the consent of the Unitholder. See "Description of OP Units -- Management limited partners, sell additional limited partnership by the AIMCO GP" in the accompanying Prospectus. interests. Such interests may be sold on such terms and Subject to Delaware law, any additional partnership conditions and the additional limited partners will interests may be issued in one or more classes, or one have such rights and obligations as the general partner or more series of any of such classes, with such may determine; provided, that the additional limited designations, preferences and relative, partici- partnership interests will not decrease pro rata the pating, optional or other special rights, powers and percentage interest of the original limited partners by duties as shall be determined by the general partner, more than 25%. In addition, the general partner must in its sole and absolute discretion without the offer such interests to the original limited partners approval of any OP Unitholder, and set forth in a pro rata in accordance with their percentage interests written document thereafter attached to and made an for a 45-day period. exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, there are no restrictions on the ability funds or other assets to its subsidiaries or other of your partnership to enter into any insurance or persons in which it has an equity investment, and such other transactions with the general partner or any of persons may borrow funds from the AIMCO Operating its affiliates. Loans made by a partner or any Partnership, on terms and conditions established in the affiliate to your partnership must (1) bear interest at sole and absolute discretion of the general partner. To a commercially reasonable rate not in excess of 3% the extent consistent with the business purpose of the above the rate of interest announced from time to time AIMCO Operating Partnership and the permitted by The First National Bank of Boston as its "prime activities of the general partner, the AIMCO Operating rate" and (2) provide that the obligation of your Partnership may transfer assets to joint ventures, partnership to make interest and principal payments limited liability companies, partnerships, will be subordinate to the obligation to pay unrelated corporations, business trusts or other business creditors but have priority over the distribution to entities in which it is or thereby becomes a partners of cash flow and capital proceeds. participant upon such terms and subject to such conditions consistent with the AIMCO Operating Part- nership 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 Your partnership is authorized to borrow money and The AIMCO Operating Partnership Agreement contains no issue evidences of indebtedness in furtherance of any restrictions on borrowings, and the general partner has of the purposes of your partnership and to secure any full power and authority to borrow money on behalf of such debt by mortgage, pledge or other lien on any of the AIMCO Operating Partnership. The AIMCO Operating the assets of your partnership. Your partnership may Partnership has credit agreements that restrict, among borrow money on the general credit of your partnership other things, its ability to incur indebtedness. See for use in your partnership's business and to take any "Risk Factors -- Risks of Significant Indebtedness" in action and enter into any agreement necessary or the accompanying Prospectus. advisable in connection with any such borrowing. The general partner may agree to decrease, increase or refinance any mortgage with the consent of the limited partners. Such consent will be deemed to be granted if the general partner makes a request for such consent and does not receive written refusal from more than 50% of the outstanding units within thirty days of such request.
S-57 3485 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage and control the business of the AIMCO Operating Partnership are vested in AIMCO-GP, the partnership, to bind the partnership by its sole Inc., which is the general partner. No OP Unitholder signature, and to take any action it deems necessary or has any right to participate in or exercise control or advisable in connection with the business of your management power over the business and affairs of the partnership. No limited partner has any authority or AIMCO Operating Partnership. The OP Unitholders have right to act for or bind your partnership or the right to vote on certain matters described under participate in or have any control over your "Comparison of Ownership of Your Units and AIMCO OP partnership's business, except as required by law. Units -- Voting Rights" 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating accountable for damages or otherwise to your Partnership for losses sustained, liabilities incurred partnership or any limited partner arising out of any or benefits not derived as a result of errors in act performed or any failure to act by any of them if judgment or mistakes of fact or law of any act or they determined, in good faith, that such act or omission if the general partner acted in good faith. failure to act was in the best interests of your The AIMCO Operating Partnership Agreement provides for partnership, and such course of conduct did not indemnification of AIMCO, or any director or officer of constitute negligence or misconduct on the part of the AIMCO (in its capacity as the previous general partner general partner. In addition, your partnership will of the AIMCO Operating Partnership), the general indemnify the general partner and its affiliates partner, any officer or director of general partner or against any claim or liability by or to any person the AIMCO Operating Partnership and such other persons other than your partnership for any acts or failures to as the general partner may designate from and against act so long as such act or failure to act was performed all losses, claims, damages, liabilities, joint or in a manner determined in good faith to be within the several, expenses (including legal fees), fines, scope of the general partner's authority and to be in settlements and other amounts incurred in connection the best interests of your partnership, and so long as with any actions relating to the operations of the such party was not guilty of negligence, misconduct or AIMCO Operating Partnership, as set forth in the AIMCO a breach of its fiduciary obligations in such act or Operating Partnership Agreement. The Delaware Limited failure to act. Any such indemnity provided will be Partnership Act provides that subject to the standards paid, from and only to the extent of, partnership and restrictions, if any, set forth in its partnership assets. Notwithstanding any other provision to the agreement, a limited partnership may, and shall have contrary, the general partner, its affiliates will not be entitled to
S-58 3486 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP indemnity for any loss, damage or cost resulting from the power to, indemnify and hold harmless any partner violations of Federal or state securities laws unless or other person from and against any and all claims and (1) there is a successful adjudication of the merits of demands whatsoever. It is the position of the each count involving such securities law violations, Securities and Exchange Commission that indemnification (2) such claims have been dismissed with prejudice on of directors and officers for liabilities arising under the merits by a court of competent jurisdiction or (3) the Securities Act is against public policy and is a court of competent jurisdiction approves a settlement unenforceable pursuant to Section 14 of the Securities of such claims. In any claim for indemnification for Act of 1933. Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. The general partner partner may not be removed as general partner of the has the right to admit an additional or substitute AIMCO Operating Partnership by the OP Unitholders with general partner with the consent of the limited or without cause. Under the AIMCO Operating Partnership partners owning a majority of the outstanding units. No Agreement, the general partner may, in its sole limited partner may substitute a transferee of his discretion, prevent a transferee of an OP Unit from units in such limited partner's place without the becoming a substituted limited partner pursuant to the consent of the general partner which may be withheld at AIMCO Operating Partnership Agreement. The general the sole discretion of the general partner. partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners to (1) comply with applicable the general partner may, without the consent of the OP tax laws, (2) specially allocate gains to equalize Unitholders, amend the AIMCO Operating Partnership capital accounts of taxpaying and tax-exempt partners Agreement, amendments to the AIMCO Operating or (3) increase the general partner's contribution. Partnership Agreement require the consent of the Your partnership's agreement of limited partnership may holders of a majority of the outstanding Common OP not be amended without the consent of all limited Units, excluding AIMCO and certain other limited partners to (1) increase the amount of capital exclusions (a "Majority in Interest"). Amendments to contributions required to be paid by the limited the AIMCO Operating Partnership Agreement may be partners, (2) extend the termination date specified in proposed by the general partner or by holders of a the agreement, (3) change the method or accelerate the Majority in Interest. Following such proposal, the dates for the payment of capital contributions or general partner will submit any proposed amendment to otherwise increase the liability of the limited the OP Unitholders. The general partner will seek the partners, or (4) adversely affect (except with respect written consent of the OP Unitholders on the proposed to additional contributions as described above) the amendment or will call a meeting to vote thereon. See rights of the limited partners with respect to profits, "Description of OP Units -- Amendment of the AIMCO losses or distributions. Any amendment which diminishes Operating Partnership Agreement" in the accompanying the rights of the general partner may not be made Prospectus. without the consent of the general partner or the limited partners owning more than 50% of the units. All other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the units.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual management fee equal to $110,000, beginning in its services as general partner of the AIMCO Operating 1988 and increasing annually at the rate of 6%. The Partnership. However, the general partner is entitled general partner may also receive reasonable to payments, allocations and distributions in its reimbursements or compensation for services actually capacity as general partner of the AIMCO Operating rendered to the partnership in the ordinary course of Partnership. In addition, the AIMCO Operating Part- business. nership is responsible for all expenses incurred relating to the AIMCO Operating Partnership's ownership of its assets and the
S-59 3487 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership in excess of his capital contribution. obligations, and liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes your partnership as necessary to conduct the business its limited partners the highest duties of good faith, of your partnership and must at all times act in a fairness and loyalty and which generally prohibit such fiduciary manner toward your partnership and the general partner from taking any action or engaging in limited partners. The general partner has a fiduciary any transaction as to which it has a conflict of responsibility for the safekeeping and use of all interest. The AIMCO Operating Partnership Agreement partnership funds and assets. The general partner or expressly authorizes the general partner to enter into, any affiliate may engage in or possess an interest in, on behalf of the AIMCO Operating Partnership, a right other business ventures of every nature and of first opportunity arrangement and other conflict description, independently or with others, including, avoidance agreements with various affiliates of the without limitation, real estate business ventures AIMCO Operating Partnership and the general partner, on whether or not such other enterprises are in such terms as the general partner, in its sole and competition with any activities of your partnership. 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an
S-60 3488 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain Units"
S-61 3489 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS exceptions; terminate your in the accompanying Prospectus. So certain transactions such as the partnership; remove a general long as any Preferred OP Units are institution of bankruptcy partner; approve the admission of a outstanding, in addition to any proceedings, an assignment for the substituted general partner; and other vote or consent of partners benefit of creditors and certain approve or disapprove the sale in required by law or by the AIMCO transfers by the general partner of single sale or a series of sales Operating Partnership Agreement, its interest in the AIMCO Operating which are part of single the affirmative vote or consent of Partnership or the admission of a transaction of substantially all of holders of at least 50% of the successor general partner. the assets of your partnership. In outstanding Preferred OP Units will addition, the consent of the be necessary for effecting any Under the AIMCO Operating Partner- limited partners is necessary to amendment of any of the provisions ship Agreement, the general partner approve any decrease, increase or of the Partnership Unit Desig- has the power to effect the refinancing of any mortgage or any nation of the Preferred OP Units acquisition, sale, transfer, other capital transaction. Such that materially and adversely exchange or other disposition of consent will be deemed to be affects the rights or preferences any assets of the AIMCO Operating granted if the general partner of the holders of the Preferred OP Partnership (including, but not makes a request for such consent Units. The creation or issuance of limited to, the exercise or grant and does not receive written re- any class or series of partnership of any conversion, option, fusal from more than 50% of the units, including, without privilege or subscription right or outstanding units within thirty limitation, any partnership units any other right available in days of such request. that may have rights senior or connection with any assets at any superior to the Preferred OP Units, time held by the AIMCO Operating A general partner may cause the shall not be deemed to materially Partnership) or the merger, dissolution of your partnership by adversely affect the rights or consolidation, reorganization or retiring. In such event, your preferences of the holders of other combination of the AIMCO partnership may be continued by the Preferred OP Units. With respect to Operating Partnership with or into remaining general partner. If no the exercise of the above de- another entity, all without the general partner remains, your part- scribed voting rights, each consent of the OP Unitholders. nership may continue if, within Preferred OP Units shall have one ninety days of the retirement, the (1) vote per Preferred OP Unit. The general partner may cause the limited partners, by unanimous dissolution of the AIMCO Operating consent, elect a substitute general Partnership by an "event of partner who is willing to continue withdrawal," as defined in the your partnership. Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Income are to $ per Preferred OP Unit; tribute quarterly all, or such be made at reasonable intervals provided, however, that at any time portion as the general partner may during the fiscal year and, in any and from time to time on or after in its sole and absolute discretion event, within 60 days after the the fifth anniversary of the issue determine, of Available Cash (as close of each fiscal year, to the date of the Preferred OP Units, the defined in the AIMCO Operating partners in proportion to the AIMCO Operating Partnership may Partnership Agreement) generated by interests in your partnership. The adjust the annual distribution rate the AIMCO Operating Partnership distributions payable to the on the Preferred OP Units to the during such quarter to the general partners are not fixed in amount lower of (i) % plus the annual partner, the special limited and depend upon the operating interest rate then applicable to partner and the holders of Common results and net sales or refi- OP Units on the record date nancing proceeds available from the dis-
S-62 3490 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS position of your partnership's U.S. Treasury notes with a maturity established by the general partner assets. of five years, and (ii) the annual with respect to such quarter, in dividend rate on the most recently accordance with their respective issued AIMCO non-convertible interests in the AIMCO Operating preferred stock which ranks on a Partnership on such record date. parity with its Class H Cumu- Holders of any other Preferred OP lative Preferred Stock. Such Units issued in the future may have distributions will be cumulative priority over the general partner, from the date of original issue. the special limited partner and Holders of Preferred OP Units will holders of Common OP Units with not be entitled to receive any respect to distributions of distributions in excess of Available Cash, distributions upon cumulative distributions on the liquidation or other distributions. Preferred OP Units. No interest, or See "Per Share and Per Unit Data" sum of money in lieu of interest, in the accompanying Prospectus. shall be payable in respect of any distribution payment or payments on The general partner in its sole and the Preferred OP Units that may be absolute discretion may distribute in arrears. to the OP Unitholders Available Cash on a more frequent basis and When distributions are not paid in provide for an appropriate record full upon the Preferred OP Units or date. any Parity Units, all distributions declared upon the Preferred OP The AIMCO Operating Partnership Units and any Parity Units shall be Agreement requires the general declared ratably in proportion to partner to take such reasonable the respective amounts of efforts, as determined by it in its distributions accumulated, accrued sole and absolute discretion and and unpaid on the Preferred OP consistent with AIMCO's Units and such Parity Units. Unless qualification as a REIT, to cause full cumulative distributions on the AIMCO Operating Partnership to the Preferred OP Units have been distribute sufficient amounts to declared and paid, except in enable the general partner to limited circumstances, no transfer funds to AIMCO and enable distributions may be declared or AIMCO to pay stockholder dividends paid or set apart for payment by that will (i) satisfy the the AIMCO Operating Partnership and requirements for qualifying as a no other distribution of cash or REIT under the Code and the other property may be declared or Treasury Regulations and (ii) avoid made, directly or indirectly, by any Federal income or excise tax the AIMCO Operating Partnership liability of AIMCO. See with respect to any Junior Units, "Description of OP nor shall any Junior Units be re- Units -- Distributions" in the deemed, purchased or otherwise accompanying Prospectus. acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units if: (1) the written consent Preferred OP Units and the OP Units. The AIMCO Operating Part- of the general partner is obtained, Preferred OP Units are not listed nership Agreement restricts the (2) the transfer complies with on any securities exchange. The transferability of the OP Units. applicable Federal and state Preferred OP Units are subject to Until the expiration of one year securities laws, (3) the transferee restrictions on transfer as set from the date on which an OP is not a minor, except in limited forth in the AIMCO Operating Unitholder acquired OP Units, circumstances, or an incompetent, Partnership Agreement. subject to certain exceptions, such (4) the interest being transfer is OP Unitholder may not transfer all not less than 1/2 a unit unless the Pursuant to the AIMCO Operating or any portion of its OP Units to general partner consents or the Partnership Agreement, until the any transferee without the consent interest constitutes the entire expiration of one year from the of the general partner, which interest of the transferor, (5) date on which a holder of Preferred consent may be withheld in its sole when added to all other transfers OP Units acquired Preferred OP and absolute discretion. After the within the preceding twelve months, Units, subject to certain expiration of one year, such OP the transfer will not result in the exceptions, such holder of Unitholder has the right to termination of your partnership for Preferred OP Units may not transfer transfer all or any portion of its tax purposes, and (6) such other all or any portion of its Pre- OP Units to any person, subject to conditions as the general partner ferred OP Units to any transferee the satisfaction of certain may require are satisfied. The without the consent of the general conditions specified in the AIMCO general partner may require, partner, which consent may be withheld in its sole and
S-63 3491 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS as a condition of any transfer, absolute discretion. After the Operating Partnership Agreement, that the transferor (1) assume all expiration of one year, such including the general partner's costs incurred by the partnership holders of Preferred OP Units has right of first refusal. See in connection with the transfer, the right to transfer all or any "Description of OP Units -- and (2) furnish it with a legal portion of its Preferred OP Units Transfers and Withdrawals" in the opinion satisfactory to counsel for to any person, subject to the accompanying Prospectus. your partnership that the transfer satisfaction of certain conditions complies with applicable Federal specified in the AIMCO Operating After the first anniversary of and state securities laws. Such Partnership Agreement, including becoming a holder of Common OP transferee may be substituted as a the general partner's right of Units, an OP Unitholder has the limited partner if: (1) the general first refusal. right, subject to the terms and partner consents in writing, which conditions of the AIMCO Operating consent may be granted or denied in After a one-year holding period, a Partnership Agreement, to require the sole discretion of the general holder may redeem Preferred OP the AIMCO Operating Partnership to partner, (2) the transferor elects Units and receive in exchange redeem all or a portion of the to become a substitute limited therefor, at the AIMCO Operating Common OP Units held by such party partner by delivering to the Partnership's option, (i) subject in exchange for a cash amount based general partner a written notice, to the terms of any Senior Units, on the value of shares of Class A executed and acknowledged by the cash in an amount equal to the Common Stock. See "Description of assignor and assignee of such Liquidation Preference of the OP Units -- Redemption Rights" in election, (3) the assignee executes Preferred OP Units tendered for the accompanying Prospectus. Upon and acknowledges such other redemption, (ii) a number of shares receipt of a notice of redemption, instruments that the general of Class I Cumulative Preferred the AIMCO Operating Partnership partner may require including an Stock of AIMCO that pay an may, in its sole and absolute adoption of your partnership's aggregate amount of dividends yield discretion but subject to the agreement of limited partnership, equivalent to the distributions on restrictions on the ownership of and (4) the assignee pays your the Preferred OP Units tendered for Class A Common Stock imposed under partnership for its expenses redemption and are part of a class AIMCO's charter and the transfer incurred in the transaction. or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-64 3492 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-65 3493 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-66 3494 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-67 3495 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-68 3496 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-69 3497 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-70 3498 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-71 3499 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-72 3500 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to $110,000 beginning in 1988 and increasing annually at the rate of 6%. The general partner may also receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $176,000 in 1996, $186,000 in 1997 and $134,000 for the first six months of 1998. The property manager received management fees of $415,000 in 1996, $272,000 in 1997 and $137,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-73 3501 YOUR PARTNERSHIP GENERAL Riverside Park Associates L.P. was organized on May 14, 1986, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of a single apartment complex, Riverside Park, a 1,222-unit complex in Fairfax County, Virginia. The general partner of your partnership is Winthrop Financial Associates, L.P. A general partner of Winthrop Financial Associates is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 568.29 units of limited partnership interest issued and outstanding, which were held of record by 666 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the S-74 3502 general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable, responsible or accountable for damages or otherwise to your partnership or any limited partner arising out of any act performed or any failure to act by any of them if they determined, in good faith, that such act or failure to act was in the best interests of your partnership, and such course of conduct did not constitute negligence or misconduct on the part of the general partner. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in absence of such provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner of your partnership and its affiliates against any claim or liability by or to any person other than your partnership for any acts or failures to act so long as such act or failure to act was performed in a manner determined in good faith to be within the scope of the general partner's authority and to be in the best interests of your partnership, and so long as such party was not guilty of negligence, misconduct or a breach of its fiduciary obligations in such act or failure to act. The indemnification will include payment of loss, damage, liability, cost or expense (including reasonable attorneys' fees) incurred by the general partner or its affiliates in connection with your partnership. Any such indemnity provided will be paid, from and only to the extent of, the assets of your partnership. Notwithstanding any other provision to the contrary, the general partner, its affiliates will not be entitled to indemnity for any loss, damage or cost resulting from violations of Federal or state securities laws unless (1) there is a successful adjudication of the merits of each count involving such securities law violations, (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction, or (3) a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for Federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities laws violations. No partnership funds will be used to purchase any insurance that insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $99.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 1,000.00 January 1, 1996 - December 31, 1996......................... 13,500.00 January 1, 1997 - December 31, 1997......................... 2,500.00 January 1, 1998 - June 30, 1998............................. 0.00
S-75 3503 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 35.31% interest in your partnership as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ $176,000 1997........................................................ 186,000 1998 (through June 30)...................................... 134,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ $415,000 1997........................................................ 423,000 1998 (through June 30)...................................... 218,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-76 3504 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT Merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Riverside Park Associates L.P. appearing in Riverside Park Associates L.P. Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-77 3505 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3506 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3507 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3508 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3509
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3510
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3511
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3512
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3513 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3514 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SHELTER PROPERTIES III IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3515 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-16 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-17 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Shelter Properties III............................. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43
PAGE ---- Accounting Treatment......................... S-43 CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-66 General...................................... S-66 Ranking...................................... S-66 Distributions................................ S-66 Allocation................................... S-67 Liquidation Preference....................... S-67 Redemption................................... S-68 Voting Rights................................ S-68 Restrictions on Transfer..................... S-68 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-69 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-71 CONFLICTS OF INTEREST.......................... S-74 Conflicts of Interest with Respect to the Offer...................................... S-74 Conflicts of Interest that Currently Exist for Your Partnership....................... S-74 Competition Among Properties................. S-74 Features Discouraging Potential Takeovers.... S-74 Future Exchange Offers....................... S-74
i 3516
PAGE ---- YOUR PARTNERSHIP............................... S-75 General...................................... S-75 Additional Information Concerning Your Partnership................................ S-75 Originally Anticipated Term of the Partnership................................ S-75 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-75 Property Management.......................... S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions................................ S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3517 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Shelter Properties III. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Shelter Realty III Corp., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3518 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3519 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $9.00 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3520 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $147.84 per unit to $214.00 per unit from January 1, 1997 to September 30, 1998. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. S-4 3521 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that, if you tender less than all of your units, after the tender you continue to hold a minimum of 10 units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3522 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3523 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3524 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $147.84 per unit to $214.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 3525 and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. S-9 3526 GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. S-10 3527 REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. S-11 3528 OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 34.07% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there S-12 3529 are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-13 3530 The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; S-14 3531 - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSE- S-15 3532 QUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. S-16 3533 We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $147.84 to $214.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. S-17 3534 CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive an annual management fee but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $238,000 for the first six months of 1998. The property manager received management fees of $137,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Shelter Properties III was organized on October 28, 1981 under the laws of the State of South Carolina. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following four residential apartment complexes: Essex Park Apartments, a 323-unit complex in Columbia, South Carolina; Colony House Apartments, a 194-unit complex in Murfreesboro, Tennessee; North River Village Apartments, a 133-unit complex in Atlanta, Georgia; and Willowick Apartments, a 180-unit complex in Greenville, South Carolina. The general partner of your partnership is Shelter Realty III Corp., which is a majority-owned subsidiary of AIMCO. The property manager, who is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 55,000 units of limited partnership interest issued and outstanding, which were held of record by 2,115 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. S-18 3535 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3536 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) ###y OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3537
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3538 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3539
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3540 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3541 SUMMARY FINANCIAL INFORMATION OF SHELTER PROPERTIES III The summary financial information of Shelter Properties III for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Shelter Properties III for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. SHELTER PROPERTIES III
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ----------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- IN THOUSANDS, EXCEPT UNIT DATA OPERATING DATA: Total Revenues.............................................. $ 2,701 $ 2,736 $ 5,567 $ 5,377 $ 5,038 Net Income (Loss)........................................... 392 345 491 413 (88) Net Income (Loss) per limited partnership unit.............. 7.05 6.21 8.84 7.43 (1.58) Distributions per limited partnership unit.................. 9.00 -- 12.60 4.54 5.40
JUNE 30, DECEMBER 31, ----------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ 11,358 11,819 11,651 12,118 12,535 Total Assets................................................ 14,547 15,428 14,654 15,191 15,325 Notes Payable............................................... 8,188 8,360 8,276 8,440 8,591 Partners' Capital (Deficit)................................. 5,655 6,317 5,763 5,972 5,810
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP SHELTER PROPERTIES III ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $9.00 $12.60
S-25 3542 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $147.84 per unit to $214.00 per unit from January 1, 1997 to September 30, 1998. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the S-26 3543 property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. S-27 3544 UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Distributions with respect to your units for the six months ended June 30, 1998 were $9.00 per unit (equivalent to $ on an annualized basis). Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 3545 MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 34.07% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. S-29 3546 Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. S-30 3547 EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 3548 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 3549 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires, if you tender less than all of your units, after the tender that you continue to hold a minimum of 10 units (except for units held by IRAs and Keogh Plans). You may tender fraction units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 3550 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 3551 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 3552 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 3553 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 3554 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 3555 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 3556 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 3557 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-41 3558 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-42 3559 compensatory damages to exceed $15 million. An answer to the complaint has been filed on behalf of the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 3560 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 3561 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 3562 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 3563 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Essex Park Apartments.................... $ % $ Colony House Apartments.................. North River Village Apartments........... Willowick Apartments.....................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 3564 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 3565 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $9.00 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 3566 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 3567 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $147.84 to $214.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 19,399 units (representing less than 35.27% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February, 1998 and in tender offers) in some transactions set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. SHELTER PROPERTIES III REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 152.00 $ 207.00 Second Quarter............................................ 185.25 214.00 First Quarter............................................. 150.00 206.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 165.00 200.00 Third Quarter............................................. 166.03 187.80 Second Quarter............................................ 163.00 194.00 First Quarter............................................. 147.84 160.00 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 145.00 168.00 Third Quarter............................................. 135.00 184.00 Second Quarter............................................ 115.00 181.50 First Quarter............................................. 130.00 181.50
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-51 3568 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Willowick Apartments and North River Apartments were appraised in December, 1997 and January, 1998, respectively, by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"). According to the appraisal reports, the scope of the appraisal included an inspection of each of the properties and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Uniform Standards of Professional Appraisal Practice. The estimated market value of the fee simple estate of each of the properties specified in those appraisal reports were $4,600,000 for Willowick Apartments and $4,900,000 for North River Apartments. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. Independent appraisals have not been conducted for any of the partnership's other properties in the past three years. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-52 3569 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-53 3570 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-54 3571 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-55 3572 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 3573 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under South Carolina law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2021. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed for the purpose of The purpose of the AIMCO Operating Partnership is to acquiring existing apartment properties which offer the conduct any business that may be lawfully conducted by potential for appreciation in value and cash a limited partnership organized pursuant to the distributions to the partners from operations. Subject Delaware Revised Uniform Limited Partnership Act (as to restrictions contained in your partnership's amended from time to time, or any successor to such agreement of limited partnership, your partnership may statute) (the "Delaware Limited Partnership Act"), perform all acts necessary, advisable or convenient to provided that such business is to be conducted in a the business of your partnership including borrowing manner that permits AIMCO to be qualified as a REIT, money and creating liens. 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.
S-57 3574 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not less than 55,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner may not purchase or funds or other assets to its subsidiaries or other lease any real property from your partnership, borrow persons in which it has an equity investment, and such any funds from your partnership, or sell or lease any persons may borrow funds from the AIMCO Operating property to your partnership, either directly or Partnership, on terms and conditions established in the indirectly through an affiliate or any other sole and absolute discretion of the general partner. To partnership in which a general partner has an interest, the extent consistent with the business purpose of the provided, however, that a general partner or an AIMCO Operating Partnership and the permitted affiliate may purchase property in their own name and activities of the general partner, the AIMCO Operating temporarily hold title thereto for your partnership or Partnership may transfer assets to joint ventures, any other purpose related to the business of your limited liability companies, partnerships, partnership, provided further that (1) the property is corporations, business trusts or other business purchased by your partnership for a price no greater entities in which it is or thereby becomes a than the cost of the property to a general partner or participant upon such terms and subject to such affiliate, (2) there is no difference in the interest conditions consistent with the AIMCO Operating Part- rates of the loans secured by the property at the time nership Agreement and applicable law as the general acquired by a general partner or affiliate and at the partner, in its sole and absolute discretion, believes time acquired by your partnership and (3) neither the to be advisable. Except as expressly permitted by the general partner nor any affiliate receives any other AIMCO Operating Partnership Agreement, neither the economic advantage by reason of holding or having held general partner nor any of its affiliates may sell, title to the property. The general partner may not transfer or convey any property to the AIMCO Operating receive interest and other financing charges on loans Partnership, directly or indirectly, except pursuant to to your partnership in excess of the lesser of the transactions that are determined by the general partner rates currently being paid by a general partner or an in good faith to be fair and reasonable. affiliate for borrowed funds or two points over the South Carolina National Bank prime interest rate, or subject any asset of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by a general partner or any affiliate, subject to certain exceptions, or provide permanent financing for any assets of your partnership. In addition, your partnership will not grant to a general partner or an affiliate an exclusive right or an exclusive employment to sell your partnership's properties. Your partnership may not enter into any contract with a general partner or an affiliate unless the contract provides that it may be terminated by your partnership without penalty upon 60 days written notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money on behalf of your partnership. The restrictions on borrowings, and the general partner has general partner cannot, in connection with the full power and authority to borrow money on behalf of acquisition of properties, subject any property of your the AIMCO Operating Partnership. The AIMCO Operating partnership to one or more mortgages, deeds of Partnership has credit
S-58 3575 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP trust and other security interests, so that the agreements that restrict, among other things, its aggregate amount of indebtedness secured by mortgages, ability to incur indebtedness. See "Risk deeds of trust and other security interests to which Factors -- Risks of Significant Indebtedness" in the all other assets of your partnership are subject, accompanying Prospectus. immediately after such action, is greater than 80% of the aggregate amount of the purchase prices of such properties. Except in connection with the acquisition or improvement of properties or the refinancing of previous obligations, the general partner may not mortgage or subject to the encumbrance of a mortgage, deed of trust or other security interest substantially all of the assets of your partnership at one time or from time to time without the approval of limited partners holding a majority of the outstanding units. The general partner also may not cause your partnership to incur, at any time, for the refinancing of your partnership's property, long-term secured indebtedness exceeding 80% of the then-appraised value of such property or new financing containing a balloon payment due in less than the later of (1) ten years or (2) three years beyond the anticipated holding period of the property. The general partner may not allow any creditor who makes a non-recourse loan to your partnership to have, or to acquire at any time as a result of making such loan, any director or indirect interest in the profit, gain, capital or other property of your partnership, other than as a secured creditor.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, each partner has the right to receive by with a statement of the purpose of such demand and at mail, upon written request to your partnership and at such OP Unitholder's own expense, to obtain a current his cost, a list of the names and addresses of the list of the name and last known business, residence or limited partners and the number of units held by each mailing address of the general partner and each other of them, provided such request is for a purpose OP Unitholder. reasonably related to such limited partner's interest in your partnership.
Management Control Under your partnership's agreement of limited All management powers over the business and affairs of partnership, the general partner has complete and the AIMCO Operating Partnership are vested in AIMCO-GP, exclusive control over the management of your Inc., which is the general partner. No OP Unitholder partnership's business and affairs, and the limited has any right to participate in or exercise control or partners have no right to participate in the management management power over the business and affairs of the or conduct of your partnership's business or affairs AIMCO Operating Partnership. The OP Unitholders have nor any power or authority to act on behalf of your the right to vote on certain matters described under partnership in any respect whatsoever. Subject to "Comparison of Ownership of Your Units and AIMCO OP certain restrictions in your partnership's agreement of Units -- Voting Rights" below. The general partner may limited partnership, the general partner has the right, not be removed by the OP Unitholders with or without power and authority, on behalf of your partnership, and cause. in its name, to exercise all rights, powers and authority of a partner of a partnership without limited In addition to the powers granted a general partner of partners under South Carolina partnership law. No a limited partnership under applicable law or that are limited partner (except one who may also be a general granted to the general partner under any other partner) may participate in or have any control over provision of the AIMCO Operating Partnership Agreement, your partnership's business or has any authority to act the general partner, subject to the other provisions of for or bind your partnership. 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.
S-59 3576 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Liability and Indemnification Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in partnership, the general partner is not liable to your the AIMCO Operating Partnership Agreement, the general partnership or the limited partners for any act or partner is not liable to the AIMCO Operating failure to act if such act or failure to act was Partnership for losses sustained, liabilities incurred performed in a manner determined by him or it in good or benefits not derived as a result of errors in faith to be within the scope of his or its authority judgment or mistakes of fact or law of any act or and to be in the best interest of your partnership, and omission if the general partner acted in good faith. if he or it was not guilty of negligence, misconduct or The AIMCO Operating Partnership Agreement provides for a breach of fiduciary obligations in such act or indemnification of AIMCO, or any director or officer of failure to act. In addition, your partnership will AIMCO (in its capacity as the previous general partner indemnify the general partner and any of its affiliates of the AIMCO Operating Partnership), the general or your partnership's employees, against any claim or partner, any officer or director of general partner or liability by or to any person other than your the AIMCO Operating Partnership and such other persons partnership, for any act or any failure to act if such as the general partner may designate from and against act or failure to act was performed in a manner all losses, claims, damages, liabilities, joint or determined by him or it in good faith to be within the several, expenses (including legal fees), fines, scope of his or its authority and to be in the best settlements and other amounts incurred in connection interest of your partnership, and if he or it was not with any actions relating to the operations of the guilty of negligence, misconduct or a breach of AIMCO Operating Partnership, as set forth in the AIMCO fiduciary obligations in such act or failure to act, Operating Partnership Agreement. The Delaware Limited provided however, that your partnership will not Partnership Act provides that subject to the standards furnish any indemnification as to liabilities arising and restrictions, if any, set forth in its partnership under federal securities laws. The indemnification agreement, a limited partnership may, and shall have includes payment of reasonable attorney's fees or other the power to, indemnify and hold harmless any partner expenses incurred in settling any claim or liability or or other person from and against any and all claims and incurred in any finally adjudicated judicial demands whatsoever. It is the position of the proceedings, and expenses incurred by the removal of Securities and Exchange Commission that indemnification any liens affecting any property of the person to be of directors and officers for liabilities arising under indemnified. Indemnification will be made from assets the Securities Act is against public policy and is of your partnership and no limited partner will be unenforceable pursuant to Section 14 of the Securities personally liable to any person to be indemnified. Act of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and appoint a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning more than 50% of partner may not be removed as general partner of the the outstanding units. No person may be admitted as a AIMCO Operating Partnership by the OP Unitholders with substitute general partner unless: (1) the remaining or without cause. Under the AIMCO Operating Partnership general partner consents in writing to the admission of Agreement, the general partner may, in its sole such person; (2) such person agrees to become a discretion, prevent a transferee of an OP Unit from substitute general partner; (3) the limited partners becoming a substituted limited partner pursuant to the holding more than 50% of the outstanding units consent AIMCO Operating Partnership Agreement. The general to the admission of such person; and (4) such person partner may exercise this right of approval to deter, executes and acknowledges such instruments as the delay or hamper attempts by persons to acquire a general partner deems necessary or advisable, including controlling interest in the AIMCO Operating Partner- a written acceptance and adoption of your partnership's ship. Additionally, the AIMCO Operating Partnership agreement of limited partnership. Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representations, duties or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, for the benefit of the Partnership Agreement require the consent of the limited partners; (2) cures any ambiguity, corrects or holders of a majority of the outstanding Common OP supplements any provision which may be inconsistent Units, excluding AIMCO and certain other limited with any other provision, or makes any other provisions exclusions (a "Majority in Interest"). Amendments to with respect to matters or questions arising under your the AIMCO Operating Partnership Agreement may be partnership's agreement of limited partnership which proposed by the general partner or by holders of a will not be inconsistent with the provisions of your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership; or(3) general partner will submit any proposed amendment to deletes or adds any provision required by applicable the OP Unitholders. The general partner will seek the law. No amendment may change your partnership to a written consent of the OP Unitholders on the proposed general partnership, extend your amend-
S-60 3577 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership's termination date beyond December 31, ment or will call a meeting to vote thereon. See 2021, or change the liability of the general partner or "Description of OP Units -- Amendment of the AIMCO the limited liability of the limited partners. In Operating Partnership Agreement" in the accompanying addition, any amendment that alters the rights of the Prospectus. general partner under your partnership's agreement of limited partnership may not be made without the consent of the general partner affected. Other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the outstanding units.
Compensation and Fees Your general partner does not receive fees as The general partner does not receive compensation for compensation for its services as general partner but its services as general partner of the AIMCO Operating may receive reimbursement for expenses incurred in such Partnership. However, the general partner is entitled capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, no limited partner is liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or any other obligations the AIMCO Operating Partnership's debts and of your partnership. A limited partner will be liable obligations, and liability of the OP Unitholders for only to make his capital contribution and will not be the AIMCO Operating Partnership's debts and obligations required to lend any funds to your partnership or, is generally limited to the amount of their invest- after his capital contribution is paid, to make any ment in the AIMCO Operating Partnership. However, the further capital contribution to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote such of its time to the business of a general partner of a Delaware limited partnership to your partnership as may be necessary to properly adhere to fiduciary duty standards under which it owes conduct the affairs of your partnership. The general its limited partners the highest duties of good faith, partner has a fiduciary responsibility for the fairness and loyalty and which generally prohibit such safekeeping and use of all funds and assets of your general partner from taking any action or engaging in partnership, whether or not in its immediate possession any transaction as to which it has a conflict of or control and may not employ or permit another to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership. The general partner on behalf of the AIMCO Operating Partnership, a right also may not commingle the funds of your partnership of first opportunity arrangement and other conflict with the funds of any other person. The general partner avoidance agreements with various affiliates of the and any of its affiliates and any of the limited AIMCO Operating Partnership and the general partner, on partners may acquire real properties for their own such terms as the general partner, in its sole and account, or engage in the acquisition, development, absolute discretion, believes are advisable. The AIMCO operation or management of real estate on behalf of Operating Partnership other partnerships, joint
S-61 3578 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ventures, corporations or other business ventures Agreement expressly limits the liability of the general formed by them or in which they may have an interest, partner by providing that the general partner, and its including business ventures similar to, related to or officers and directors will not be liable or in direct or indirect competition with any business of accountable in damages to the AIMCO Operating your partnership. Neither your partnership nor any Partnership, the limited partners or assignees for other partner has any right in or to such other errors in judgment or mistakes of fact or law or of any business venture or income or profits derived act or omission if the general partner or such director therefrom. or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-62 3579 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with more than 50% of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may: Units will have the same voting such as certain amendments and (1) dissolve your partnership; (2) rights as holders of the Common OP termination of the AIMCO Operating remove the general partner; (3) Units. See "Description of OP Partnership Agreement and certain amend your partnership's agreement Units" in the accompanying transactions such as the of limited partnership, subject to Prospectus. So long as any institution of bankruptcy certain exceptions; (4) appoint a Preferred OP Units are outstand- proceedings, an assignment for the successor general partner; and (5) ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale of or consent of partners required by transfers by the general partner of all or substantially all of the law or by the AIMCO Operating its interest in the AIMCO Operating assets of your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- being removed from office, retiring be necessary for effecting any ship Agreement, the general partner or becoming insolvent. Your amendment of any of the provisions has the power to effect the partnership will not dissolve but of the Partnership Unit Desig- acquisition, sale, transfer, will be continued by the limited nation of the Preferred OP Units exchange or other disposition of partners if all of the partners that materially and adversely any assets of the AIMCO Operating elect to continue the business of affects the rights or preferences Partnership (including, but not your partnership, or the remaining of the holders of the Preferred OP limited to, the exercise or grant general partner elects to con- Units. The creation or issuance of of any conversion, option, tinue the business within 90 days any class or series of partnership privilege or subscription right or following one of the above events. units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in
S-63 3580 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations (as defined in your provided, however, that at any time portion as the general partner may partnership's agreement of limited and from time to time on or after in its sole and absolute discretion partnership) will be made within 60 the fifth anniversary of the issue determine, of Available Cash (as days following the end of each date of the Preferred OP Units, the defined in the AIMCO Operating fiscal quarter. The distributions AIMCO Operating Partnership may Partnership Agreement) generated by payable to the partners are not adjust the annual distribution rate the AIMCO Operating Partnership fixed in amount and depend upon the on the Preferred OP Units to the during such quarter to the general operating results and net sales or lower of (i) % plus the annual partner, the special limited refinancing proceeds available from interest rate then applicable to partner and the holders of Common the disposition of your U.S. Treasury notes with a maturity OP Units on the record date partnership's assets. of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or with respect to any Junior
S-64 3581 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Units, nor shall any Junior Units excise tax liability of AIMCO. See be redeemed, purchased or otherwise "Description of OP acquired for consideration, nor Units -- Distributions" in the shall any other cash or other accompanying Prospectus. property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign all or There is no public market for the There is no public market for the part of his units to any person if: Preferred OP Units and the OP Units. The AIMCO Operating Part- (1) such assignment, in the case of Preferred OP Units are not listed nership Agreement restricts the an individual assignor, is not a on any securities exchange. The transferability of the OP Units. fractional unit and if, less than Preferred OP Units are subject to Until the expiration of one year all of the assignor's interest is restrictions on transfer as set from the date on which an OP being transferred, such assignor forth in the AIMCO Operating Unitholder acquired OP Units, and the assignee would not hold Partnership Agreement. subject to certain exceptions, such less ten units, except in limited OP Unitholder may not transfer all circumstance; and (2) the as- Pursuant to the AIMCO Operating or any portion of its OP Units to signee provides a written Partnership Agreement, until the any transferee without the consent acceptance and adoption of your expiration of one year from the of the general partner, which partnership's agreement of limited date on which a holder of Preferred consent may be withheld in its sole partnership. No assignee may become OP Units acquired Preferred OP and absolute discretion. After the a substitute limited partner unless Units, subject to certain expiration of one year, such OP such assignee executes a written exceptions, such holder of Unitholder has the right to acceptance and adoption of your Preferred OP Units may not transfer transfer all or any portion of its partnership's agreement of limited all or any portion of its Pre- OP Units to any person, subject to partnership. ferred OP Units to any transferee the satisfaction of certain without the consent of the general conditions specified in the AIMCO partner, which consent may be Operating Partnership Agreement, withheld in its sole and absolute including the general partner's discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- OP Units has the right to transfer Transfers and Withdrawals" in the all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of certain After the first anniversary of conditions specified in the AIMCO becoming a holder of Common OP Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO Operating Partnership Agreement, to require After a one-year holding period, a the AIMCO Operating Partnership to holder may redeem Preferred OP redeem all or a portion of the Units and receive in exchange Common OP Units held by such party therefor, at the AIMCO Operating in exchange for a cash amount based Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-65 3582 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-66 3583 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-67 3584 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-68 3585 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-69 3586 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-70 3587 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-71 3588 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-72 3589 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-73 3590 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive an annual management fee but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $305,000 in 1996, $314,000 in 1997 and $238,000 for expenses for the first six months of 1998. The property manager received management fees of $265,000 in 1996, $272,000 in 1997 and $137,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-74 3591 YOUR PARTNERSHIP GENERAL Shelter Properties III was organized on October 28, 1981 under the laws of the State of South Carolina. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following four residential apartment complexes: Essex Park Apartments, a 323-unit complex in Columbia, South Carolina; Colony House Apartments, a 194-unit complex in Murfreesboro, Tennessee; North River Village Apartments, a 133-unit complex in Atlanta, Georgia; and Willowick Apartments, a 180-unit complex in Greenville, South Carolina. The general partner of your partnership is Shelter Realty III Corp., which is a majority-owned subsidiary of AIMCO. The property manager, who is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 55,000 units of limited partnership interest issued and outstanding, which were held of record by 2,115 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-K SB for the year ended December 31, 1997; - Quarterly Reports on Form 10-Q SB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP In a prospectus dated September 2, 1981, your general (then not affiliated with us) anticipated that opportunities for financing, refinancing, sale or other disposition will be available for most properties within less than three years of the acquisition. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2021, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets S-75 3592 conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner is not liable to your partnership or the limited partners for any act or failure to act if such act or failure to act was performed in a manner determined by him or it in good faith to be within the scope of his or its authority and to be in the best interest of your partnership, and if he or it was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner and any of its affiliates or your partnership's employees, against any claim or liability by or to any person other than your partnership, for any act or failure to act if such act or failure to act was performed in a manner determined by him or it in good faith to be within the scope of his or its authority and to be in the best interest of your partnership, and if he or it was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act, provided however, that your partnership will not furnish any indemnification as to liabilities arising under federal securities laws. The indemnification will include payment of reasonable attorneys' fees or other expenses incurred in settling any claim or liability or incurred in any finally adjudicated judicial proceedings, and expenses incurred by the removal of any liens affecting any property of the person to be indemnified. Indemnification will be made from assets of your partnership and no limited partner will be personally liable to any person to be indemnified. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $500.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 5.40 January 1, 1996 - December 31, 1996......................... 4.54 January 1, 1997 - December 31, 1997......................... 12.60 January 1, 1998 - June 30, 1998............................. 9.00
S-76 3593 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 34.07% interest in your partnership as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $270,068 1995........................................................ 285,229 1996........................................................ 305,000 1997........................................................ 314,000 1998 (through June 30)...................................... 238,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $229,932 1995........................................................ 248,101 1996........................................................ 265,000 1997........................................................ 272,000 1998 (through June 30)...................................... 137,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 3594 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Shelter Properties III Limited Partnership appearing in Shelter Properties III Limited Partnership Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young, LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 3595 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3596 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3597 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3598 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3599
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3600
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3601
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3602
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3603 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3604 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SHELTER PROPERTIES VI IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of October 31, 1997 (your partnership's fiscal year ended) your general partner estimated the net asset value of your units to be $639.00 per unit and an affiliate estimated the net liquidation value of your units to be $669.22 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3605 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Shelter Properties VI.............................. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-56 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77 Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78
i 3606
PAGE ---- Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 [Fiduciary Responsibility of the General Partner of Your Partnership]............... S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3607 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Shelter Properties VI. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Shelter Realty VI Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3608 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3609 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $22.99 per unit for the fiscal year ended October 31, 1997. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3610 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $223.66 per unit to $390.00 per unit for the period from January 1, 1997 to September 30, 1998. As of October 31, 1997, your general partner estimated the net asset value of your units to be $639.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $669.22 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your S-4 3611 partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, if you tender less than all of your units, you must continue to hold at least 3 units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, S-5 3612 we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3613 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3614 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of October 31, 1997, your general partner estimated the net asset value of your units to be $639.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $669.22 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $223.66 per unit to $390.00 per unit for the period from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of S-8 3615 factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general S-9 3616 partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 3617 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 3618 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 35.83% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 3619 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 3620 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 3621 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 3622 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 3623 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $223.66 to $390.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 3624 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursement for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $156,000 for the nine months ended July 31, 1998. The property manager received management fees of $380,000 for the nine months ended July 31, 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Shelter Properties VI was organized on August 3, 1983, under the laws of the State of South Carolina. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following S-18 3625 six residential apartment complexes: Rocky Creek Apartments, a 120-unit complex in Augusta, Georgia; Carriage House Apartments, a 102-unit complex in Gastonia, North Carolina; Nottingham Square Apartments, a 442-unit complex in Des Moines, Iowa; Foxfire Apartments/Barcelona Apartments, a 354-unit complex in Durham, North Carolina; River Reach Apartments, a 298-unit complex in Jacksonville, Florida; and Village Garden Apartments, a 141-unit complex in Fort Collins, Colorado. The general partner of your partnership is Shelter Realty VI Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 42,314 units of limited partnership interest issued and outstanding, which were held of record by 3,058 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3626 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3627
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3628 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3629
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3630 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3631 SUMMARY FINANCIAL INFORMATION OF SHELTER PROPERTIES VI The summary financial information of Shelter Properties VI for the six months ended July 31, 1998 and 1997 is unaudited. The summary financial information for Shelter Properties VI for the years ended October 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. SHELTER PROPERTIES VI
FOR THE NINE MONTHS ENDED JULY 31, FOR THE YEAR ENDED OCTOBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.................................... $ 7,581 $ 8,020 $10,719 $10,079 $12,136 Net Income (Loss)................................. 206 634 395 (61) 772 Net Income (Loss) per limited partnership unit.... 4.82 14.84 9.24 1.42 18.05 Distributions per limited partnership unit........ -- 22.99 -- 23.63
JUNE 30, DECEMBER 31, ----------------- --------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation...... $26,770 $27,610 $27,458 $28,219 $29,229 Total Assets...................................... 32,789 34,471 33,182 34,211 35,795 Notes Payable..................................... 26,316 26,940 26,790 27,372 27,906 Partners' Capital (Deficit)....................... 5,044 6,060 4,838 5,426 5,487
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING SHELTER PROPERTIES VI PARTNERSHIP ------------------------- ------------------------- NINE SIX MONTHS MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JULY 31, OCTOBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding..... $1.125 $1.85 $ 0.00 $22.99
S-25 3632 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $223.66 per unit to $390.00 per unit for the period from January 1, 1997 to September 30, 1998. As of October 31, 1997, your general partner estimated the net asset value of your units to be $639.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of October 31, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $669.22 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 3633 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. S-27 3634 This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended October 31,1997 were $22.99 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." S-28 3635 FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your S-29 3636 partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a % interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your S-30 3637 partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. S-31 3638 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 3639 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 3640 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, if you tender less than all of your units, you must continue to hold at least 3 units following our acceptance of tendered units. You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 3641 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 3642 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 3643 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 3644 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 3645 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 3646 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 3647 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 3648 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 3649 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-43 3650 compensatory damages to exceed $15 million. An answer to the complaint has been filed by of the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 3651 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 3652 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 3653 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 3654 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, each partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination; the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offeree in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offeree following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 3655 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Rocky Creek Apartments....................... $ % $ Carriage House Apartments.................... Nottingham Square Apartments................. Foxfire Apartments/Barcelona Apartments...... River Reach Apartments....................... Village Garden Apartments....................
- - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 3656 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 3657 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Distributions with respect to your units for the fiscal year ended October 31, 1997 were $22.99. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 3658 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 3659 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $223.66 to $390.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 16,192 units (representing less than 38.25% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner and by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices; thus the AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. SHELTER PROPERTIES VI REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY THE PARTNERSHIP THE GENERAL PARTNER(a) SPECTRUM(b) ---------------------- ---------------------- LOW SALES HIGH SALES LOW SALES HIGH SALES PRICE PRICE PRICE PRICE PER UNIT PER UNIT PER UNIT PER UNIT --------- ---------- --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter................................... $310.00 $357.08 (c) (c) Second Quarter.................................. 329.75 390.00 $340.00 $340.00 First Quarter................................... 225.00 360.00 250.00 332.00 Fiscal Year Ended December 31, 1997: Fourth Quarter.................................. 270.00 335.00 312.00 365.00 Third Quarter................................... 250.00 330.00 300.00 365.00 Second Quarter.................................. 246.38 315.00 280.00 340.00 First Quarter................................... 223.66 285.00 250.00 302.00 Fiscal Year Ended December 31, 1996: Fourth Quarter.................................. 210.00 285.00 245.00 285.00 Third Quarter................................... 220.00 290.40 -- -- Second Quarter.................................. 10.00 252.00 -- -- First Quarter................................... 137.00 230.00 -- --
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the S-53 3660 first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). (b) The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The AIMCO Operating Partnership does not know whether the information compiled by The Partnership Spectrum is accurate or complete. (c) Not yet published. The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Each of your partnership's properties was appraised in 1997 by an independent third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a requirement in your partnership's agreement of limited partnership. According to the appraisal reports, the scope of the appraisals included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial S-54 3661 Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of each of the properties specified in those reports was $3,400,000, for Rocky Creek Apartments; $3,150,000 for Carriage House Apartments; $14,300,000 for Birmingham Square Apartments; $12,300,000 for Foxfire Apartments/Barcelona Apartments; $14,300,000 for River Reach Apartments; and $5,500,000 for Village Garden Apartments. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with that estimate of your partnership's net asset value per unit as of October 31, 1997 was $639.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-55 3662 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and S-56 3663 local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect S-57 3664 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 3665 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under South Carolina law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2023. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed for the purpose of The purpose of the AIMCO Operating Partnership is to acquiring existing apartment properties which offer the conduct any business that may be lawfully conducted by potential for appreciation in value and cash a limited partnership organized pursuant to the distributions to the partners from operations. Subject Delaware Revised Uniform Limited Partnership Act (as to restrictions contained in your partnership's amended from time to time, or any successor to such agreement of limited partnership, your partnership may statute) (the "Delaware Limited Partnership Act"), perform all acts necessary, advisable or convenient to provided that such business is to be conducted in a the business of your partnership including borrowing manner that permits AIMCO to be qualified as a REIT, money and creating liens. 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.
S-59 3666 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not less than 35,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner will not purchase or funds or other assets to its subsidiaries or other lease any real property from your partnership, borrow persons in which it has an equity investment, and such any funds from your partnership, or sell or lease any persons may borrow funds from the AIMCO Operating property to your partnership, either directly or Partnership, on terms and conditions established in the indirectly through an affiliate or any other sole and absolute discretion of the general partner. To partnership in which a general partner has an interest, the extent consistent with the business purpose of the provided, however, that a general partner or an AIMCO Operating Partnership and the permitted affiliate may purchase property in their own name and activities of the general partner, the AIMCO Operating temporarily hold title thereto for your partnership or Partnership may transfer assets to joint ventures, any other purpose related to the business of your limited liability companies, partnerships, partnership, provided further that (1) the property is corporations, business trusts or other business purchased by your partnership for a price no greater entities in which it is or thereby becomes a than the cost of the property to a general partner or participant upon such terms and subject to such affiliate, (2) there is no difference in the interest conditions consistent with the AIMCO Operating Part- rates of the loans secured by the property at the time nership Agreement and applicable law as the general acquired by a general partner or affiliate and at the partner, in its sole and absolute discretion, believes time acquired by your partnership, and (3) neither the to be advisable. Except as expressly permitted by the general partner nor any affiliate receives any other AIMCO Operating Partnership Agreement, neither the economic advantage by reason of holding or having held general partner nor any of its affiliates may sell, title to the property. The general partner may not transfer or convey any property to the AIMCO Operating receive interest and other financing charges on loans Partnership, directly or indirectly, except pursuant to to your partnership in excess of the lesser of the transactions that are determined by the general partner rates currently being paid by a general partner or an in good faith to be fair and reasonable. affiliate for borrowed funds or two points over the South Carolina National Bank prime interest rate, or subject any asset of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by a general partner or any affiliate or provide permanent financing for any asset of your partnership. Subject to certain exceptions, the general partner or an affiliate may subject your partnership's property to a wrap-around or all-inclusive note and mortgage or deed of trust, except that no prepayment charge or penalty may be required by a general partner or an affiliate on a loan to your partnership secured by an all-inclusive trust deed, mortgage or encumbrance on your partnership's property, other than to the extent that such prepayment charge or penalty is attributable to the underlying encumbrance. In addition, your partnership will not grant to a general partner or an affiliate an exclusive right or an exclusive employment to sell your partnership's properties. Your partnership may not enter into any contract with a general partner or an affiliate unless the contract provides that it may be
S-60 3667 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP terminated by your partnership without penalty upon 60 days written notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money on behalf of your partnership. The restrictions on borrowings, and the general partner has general partner cannot, in connection with the full power and authority to borrow money on behalf of acquisition of properties, subject any property of your the AIMCO Operating Partnership. The AIMCO Operating partnership to one or more mortgages, deeds of trust Partnership has credit agreements that restrict, among and other security interests, so that the aggregate other things, its ability to incur indebtedness. See amount of indebtedness secured by mortgages, deeds of "Risk Factors -- Risks of Significant Indebtedness" in trust and other security interests to which all other the accompanying Prospectus. assets of your partnership are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase prices of such properties or, in connection with the refinancing of a property, subject a property to secured indebtedness exceeding 80% of the value of such property. Except in connection with the acquisition or improvement of properties or the refinancing of previous obligations, the general partner may not mortgage or subject to the encumbrance of a mortgage, deed of trust or other security interest substantially all of the assets of your partnership at one time or from time to time without the approval of limited partners holding a majority of the outstanding units. The general partner also may not acquire a property if any new permanent first mortgage financing incurred for such purchase, including any "wrap-around" or "all-inclusive" obligation, contains a provision for a balloon payment due and payable prior to the earlier of (1) 10 years from the date your partnership acquires the property; or (2) two years beyond the anticipated holding period of the property; provided that in no event may the balloon payment become due sooner than seven years from the date of acquisition of the property, and any such mortgage must be amortizable prior to maturity on a 20 to 40-year schedule. The general partner may not allow any creditor who makes a non-recourse loan to your partnership to have, or to acquire at any time as a result of making such loan, any direct or indirect interest in the profit, gain, capital or other property of your partnership, other than as a secured creditor.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, each partner has the right to receive by with a statement of the purpose of such demand and at mail, upon written request to your partnership and at such OP Unitholder's own expense, to obtain a current his cost, a list of the names and addresses of the list of the name and last known business, residence or limited partners and the number of units held by each mailing address of the general partner and each other of them, provided such request is for a purpose OP Unitholder. reasonably related to such limited partner's interest in your partnership.
Management Control Under your partnership's agreement of limited All management powers over the business and affairs of partnership, the general partner has complete and the AIMCO Operating Partnership are vested in AIMCO-GP, exclusive control over the management of your Inc., which is the general partner. No OP Unitholder partnership's business and affairs, and the limited has any right to participate in or exercise control or partners have no right to participate in the management management power over the business and affairs of the or conduct of your partnership's business or affairs AIMCO Operating Partnership. The OP Unitholders have nor any power or authority to act on behalf of your the right to vote on certain matters described under partnership in any respect whatsoever. Subject to "Comparison of Ownership of Your Units and AIMCO OP certain restrictions in your partnership's agreement of Units -- Voting Rights" below. The general partner may limited partnership, the general partner has the right, not be removed by the OP Unitholders with or without power and authority, on behalf of your partnership, and cause. in its name, to exercise all rights, powers and authority of a partner of a partnership without limited In addition to the powers granted a general partner of partners under South Carolina partnership law. No a limited partnership under applicable law or that are limited partner (except one who may also be granted to the general partner under any other provision of the AIMCO Operating
S-61 3668 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP a general partner, and then only in his capacity as Partnership Agreement, the general partner, subject to general partner) may participate in or has any control the other provisions of the AIMCO Operating Partnership over your partnership's business or has any authority Agreement, has full power and authority to do all to act for or bind your partnership. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner is not liable to your the AIMCO Operating Partnership Agreement, the general partnership or the limited partners for any act or partner is not liable to the AIMCO Operating failure to act if such act or failure to act was Partnership for losses sustained, liabilities incurred performed in a manner determined by him or it in good or benefits not derived as a result of errors in faith to be within the scope of his or its authority judgment or mistakes of fact or law of any act or and to be in the best interest of your partnership, and omission if the general partner acted in good faith. if he or it was not guilty of negligence, misconduct or The AIMCO Operating Partnership Agreement provides for a breach of fiduciary obligations in such act or indemnification of AIMCO, or any director or officer of failure to act. In addition, your partnership will AIMCO (in its capacity as the previous general partner indemnify the general partner or its affiliates for any of the AIMCO Operating Partnership), the general act or failure to act as described above. Your partner, any officer or director of general partner or partnership will not furnish any indemnifications as to the AIMCO Operating Partnership and such other persons liabilities arising under federal securities laws. The as the general partner may designate from and against indemnification includes payment of reasonable all losses, claims, damages, liabilities, joint or attorney's fees or other expenses incurred in settling several, expenses (including legal fees), fines, any claims or liability or incurred in any finally settlements and other amounts incurred in connection adjudicated judicial proceedings, and expenses incurred with any actions relating to the operations of the by the removal of any liens affecting any property of AIMCO Operating Partnership, as set forth in the AIMCO the person to be indemnified. Indemnification will be Operating Partnership Agreement. The Delaware Limited made from assets of your partnership and no limited Partnership Act provides that subject to the standards partner will be personally liable to any person to be and restrictions, if any, set forth in its partnership indemnified. 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 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and appoint a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning more than 50% of partner may not be removed as general partner of the the outstanding units. A general partner may resign, AIMCO Operating Partnership by the OP Unitholders with with the consent of a majority of the limited partners, or without cause. Under the AIMCO Operating Partnership if the general partner nominates a substitute general Agreement, the general partner may, in its sole partner whose admission will not terminate the status discretion, prevent a transferee of an OP Unit from of your partnership for federal income tax purposes. No becoming a substituted limited partner pursuant to the person may be admitted as a substitute general partner AIMCO Operating Partnership Agreement. The general unless: (1) such person agrees to become a substitute partner may exercise this right of approval to deter, general partner; (2) the limited partners holding more delay or hamper attempts by persons to acquire a than 50% of the outstanding units consent to the controlling interest in the AIMCO Operating Partner- admission of such person; and (3) such person executes ship. Additionally, the AIMCO Operating Partnership and acknowledges such instruments as the general Agreement contains restrictions on the ability of OP partner deems Unitholders to
S-62 3669 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP necessary or advisable, including a written acceptance transfer their OP Units. See "Description of OP and adoption of your partnership's agreement of limited Units -- Transfers and Withdrawals" in the accompanying partnership. Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representations, duties or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, for the benefit of the Partnership Agreement require the consent of the limited partners; (2) cures any ambiguity, corrects or holders of a majority of the outstanding Common OP supplements any provision which may be inconsistent Units, excluding AIMCO and certain other limited with any other provision, or makes any other provisions exclusions (a "Majority in Interest"). Amendments to with respect to matters or questions arising under your the AIMCO Operating Partnership Agreement may be partnership's agreement of limited partnership which proposed by the general partner or by holders of a will not be inconsistent with the provisions of your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership; or (3) general partner will submit any proposed amendment to deletes or adds any provision required by applicable the OP Unitholders. The general partner will seek the law. No amendment may change your partnership to a written consent of the OP Unitholders on the proposed general partnership, extend your partnership's amendment or will call a meeting to vote thereon. See termination date beyond December 31, 2023, or change "Description of OP Units -- Amendment of the AIMCO the liability of the general partner or the limited Operating Partnership Agreement" in the accompanying liability of the limited partners. In addition, any Prospectus. amendment that alters the rights of the general partner under your partnership's agreement of limited partnership may not be made without the consent of the general partner affected. Other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the outstanding units.
Compensation and Fees The general partner of your partnership does not The general partner does not receive compensation for receive fees as compensation, but may receive its services as general partner of the AIMCO Operating reimbursement for expenses incurred in its capacity as Partnership. However, the general partner is entitled general partner. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-63 3670 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, no limited partner is liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or any other obligations the AIMCO Operating Partnership's debts and of your partnership. A limited partner will be liable obligations, and liability of the OP Unitholders for only to make his capital contribution and will not be the AIMCO Operating Partnership's debts and obligations required to lend any funds to your partnership or, is generally limited to the amount of their invest- after his capital contribution is paid, to make any ment in the AIMCO Operating Partnership. However, the further capital contribution to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote such of its time to the business of a general partner of a Delaware limited partnership to your partnership as may be necessary to properly adhere to fiduciary duty standards under which it owes conduct the affairs of your partnership. The general its limited partners the highest duties of good faith, partner has a fiduciary responsibility for the fairness and loyalty and which generally prohibit such safekeeping and use of all funds and assets of your general partner from taking any action or engaging in partnership, whether or not in its immediate possession any transaction as to which it has a conflict of or control and may not employ or permit another to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership. The general partner on behalf of the AIMCO Operating Partnership, a right also may not commingle the funds of your partnership of first opportunity arrangement and other conflict with the funds of any other person. The general partner avoidance agreements with various affiliates of the and any of its affiliates and any of the limited AIMCO Operating Partnership and the general partner, on partners may acquire real properties for their own such terms as the general partner, in its sole and account, or engage in the acquisition, development, absolute discretion, believes are advisable. The AIMCO operation or management of real estate on behalf of Operating Partnership Agreement expressly limits the other partnerships, joint ventures, corporations or liability of the general partner by providing that the other business ventures formed by them or in which they general partner, and its officers and directors will may have an interest, including business ventures not be liable or accountable in damages to the AIMCO similar to, related to or in direct or indirect Operating Partnership, the limited partners or competition with any business of your partnership. assignees for errors in judgment or mistakes of fact or Neither your partnership nor any other partner has any law or of any act or omission if the general partner or right in or to such other business venture or income or such director or officer acted in good faith. See profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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
S-64 3671 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with more than 50% of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may: Units will have the same voting such as certain amendments and (1) dissolve your partnership; (2) rights as holders of the Common OP termination of the AIMCO Operating remove the general partner; (3) Units. See "Description of OP Partnership Agreement and certain amend your partnership's agreement Units" in the accompanying transactions such as the of limited partnership, subject to Prospectus. So long as any institution of bankruptcy certain exceptions; (4) appoint a Preferred OP Units are outstand- proceedings, an assignment for the substitute general partner; and (5) ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale of or consent of partners required by transfers by the general partner of all or substantially all of the law or by the AIMCO Operating its interest in the AIMCO Operating assets of your partnership. Partnership Agreement, the Partnership or the admission of a affirmative vote or consent of successor general partner. A general partner may cause the holders of at least 50% of the dissolution of your partnership by outstanding Preferred OP Units will Under the AIMCO Operating Partner- being removed be necessary for effecting any amendment of any of the
S-65 3672 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS from office, retiring or becoming provisions of the Partnership Unit ship Agreement, the general partner insolvent. Your partnership will Designation of the Preferred OP has the power to effect the not dissolve but will be continued Units that materially and adversely acquisition, sale, transfer, by the limited partners if: (1) all affects the rights or preferences exchange or other disposition of of the partners elect to continue of the holders of the Preferred OP any assets of the AIMCO Operating the business of your partnership, Units. The creation or issuance of Partnership (including, but not or (2) the remaining general any class or series of partnership limited to, the exercise or grant partner elects to continue the units, including, without of any conversion, option, business within 90 days following limitation, any partnership units privilege or subscription right or one of the above events and that may have rights senior or any other right available in nominates a substitute general superior to the Preferred OP Units, connection with any assets at any partner whose admission will not shall not be deemed to materially time held by the AIMCO Operating terminate the status of your adversely affect the rights or Partnership) or the merger, partnership for federal income tax preferences of the holders of consolidation, reorganization or purposes. Preferred OP Units. With respect to other combination of the AIMCO the exercise of the above de- Operating Partnership with or into scribed voting rights, each another entity, all without the Preferred OP Units shall have one consent of the OP Unitholders. (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations will be made within 60 provided, however, that at any time portion as the general partner may days following the end of each and from time to time on or after in its sole and absolute discretion fiscal quarter. The distributions the fifth anniversary of the issue determine, of Available Cash (as payable to the partners are not date of the Preferred OP Units, the defined in the AIMCO Operating fixed in amount and depend upon the AIMCO Operating Partnership may Partnership Agreement) generated by operating results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distribu- respect to distri-
S-66 3673 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tions in excess of cumulative butions of Available Cash, distributions on the Preferred OP distributions upon liquidation or Units. No interest, or sum of money other distributions. See "Per Share in lieu of interest, shall be and Per Unit Data" in the payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign all or There is no public market for the There is no public market for the part of his units to any person if: Preferred OP Units and the OP Units. The AIMCO Operating Part- (1) such assignment, in the case of Preferred OP Units are not listed nership Agreement restricts the an individual assignor, is not a on any securities exchange. The transferability of the OP Units. fractional unit and, if assignor Preferred OP Units are subject to Until the expiration of one year does not transfer all his restrictions on transfer as set from the date on which an OP interests, such assignor and the forth in the AIMCO Operating Unitholder acquired OP Units, assignee would not hold less than Partnership Agreement. subject to certain exceptions, such three units, except in limited OP Unitholder may not transfer all circumstances and (2) the assignee Pursuant to the AIMCO Operating or any portion of its OP Units to provides a written acceptance and Partnership Agreement, until the any transferee without the consent adoption of your partnership's expiration of one year from the of the general partner, which agreement of limited partnership. date on which a holder of Preferred consent may be withheld in its sole No assignee may become a substitute OP Units acquired Preferred OP and absolute discretion. After the limited partner unless such as- Units, subject to certain expiration of one year, such OP signee executes a written exceptions, such holder of Unitholder has the right to acceptance and adoption of your Preferred OP Units may not transfer transfer all or any portion of its partnership's agreement of limited all or any portion of its Pre- OP Units to any person, subject to partnership and pays all reason- ferred OP Units to any transferee the satisfaction of certain able expenses connected to such without the consent of the general conditions specified in the AIMCO assignment. partner, which consent may be Operating Partnership Agreement, withheld in its sole and absolute including the general partner's discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- OP Units has the right to transfer Transfers and Withdrawals" in the all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of certain After the first anniversary of conditions specified in the AIMCO becoming a holder of Common OP Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO
S-67 3674 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Operating Partnership Agreement, to After a one-year holding period, a require the AIMCO Operating holder may redeem Preferred OP Partnership to redeem all or a Units and receive in exchange portion of the Common OP Units held therefor, at the AIMCO Operating by such party in exchange for a Partnership's option, (i) subject cash amount based on the value of to the terms of any Senior Units, shares of Class A Common Stock. See cash in an amount equal to the "Description of OP Liquidation Preference of the Units -- Redemption Rights" in the Preferred OP Units tendered for accompanying Prospectus. Upon redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the AIMCO Operating Partnership Stock of AIMCO that pay an may, in its sole and absolute aggregate amount of dividends yield discretion but subject to the equivalent to the distributions on restrictions on the ownership of the Preferred OP Units tendered for Class A Common Stock imposed under redemption and are part of a class AIMCO's charter and the transfer or series of preferred stock that restrictions and other limitations is then listed on the New York thereof, elect to cause AIMCO to Stock Exchange or another national acquire some or all of the tendered securities exchange, or (iii) a Common OP Units in exchange for number of shares of Class A Common Class A Common Stock, based on an Stock of AIMCO that is equal in exchange ratio of one share of Value to the Liquidation Preference Class A Common Stock for each Com- of the Preferred OP Units tendered mon OP Unit, subject to adjustment for redemption. The Preferred OP as provided in the AIMCO Operating Units may not be redeemed at the Partnership Agreement. option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 3675 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 3676 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 3677 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 3678 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 3679 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 3680 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 3681 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 3682 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 3683 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursement for expenses incurred in its capacity as general partner. The general partner of your partnership received fees and reimbursements totaling $184,000 in 1996, $220,000 in 1997, and $156,000 for the nine months ended July 31, 1998. The property manager received management fees of $497,000 in 1996, $511,000 in 1997 and $380,000 for the nine months ended July 31, 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 3684 YOUR PARTNERSHIP GENERAL Shelter Properties VI was organized on August 3, 1983, under the laws of the State of South Carolina. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following six residential apartment complexes; Rocky Creek Apartments, a 120-unit complex in Augusta, Georgia; Carriage House Apartments, a 102-unit complex in Gastonia, North Carolina; Nottingham Square Apartments, a 442-unit complex in Des Moines, Iowa; Foxfire Apartments/Barcelona Apartments, a 354-unit complex in Durham, North Carolina; River Reach Apartments, a 298-unit complex in Jacksonville, Florida; and Village Garden Apartments, a 141-unit complex in Fort Collins, Colorado. The general partner of your partnership is Shelter Realty VI Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 42,314 units of limited partnership interest issued and outstanding, which were held of record by 3,058 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended October 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended January 31, 1998, April 30, 1998 and July 31, 1998; and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated March 22, 1984, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the third year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, S-78 3685 2023, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner is not liable to your partnership or the limited partners for any act or failure to act if such act or failure to act was performed in a manner determined by him or it in good faith to be within the scope of his or its authority and to be in the best interest of your partnership, and if he or it was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner and any of its affiliates or your partnership's employees, against any claim or liability by or to any person other than your partnership, for any act or failure to act if such act or failure to act was performed in a manner determined by him or it in good faith to be within the scope of his or its authority and to be in the best interest of your partnership, and if he or it was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act, provided however, that your partnership will not furnish any indemnification as to liabilities arising under federal securities laws. The indemnification includes payment of reasonable attorney's fees or other expenses incurred in settling any claim or liability or incurred in any finally adjudicated judicial proceedings, and expenses incurred by the removal of any liens affecting any property of the person to be indemnified. Indemnification will be made from assets of your partnership and no limited partner will be personally liable to any person to be indemnified. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-79 3686 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.00.
PERIOD DISTRIBUTIONS - ------ ------------- November 1, 1995 - October 31, 1995......................... $ 23.63 November 1, 1996 - October 31, 1996......................... November 1, 1997 - October 31, 1997......................... 22.99 November 1, 1998 - July 31, 1998............................ --
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 35.83% interest in your partnership, including 42,314 units held by us and the interest held by Shelter Realty VI Corporation, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $152,091 1995........................................................ 164,528 1996........................................................ 184,000 1997........................................................ 220,000 1998 (through July 31, 1998)................................ 156,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $517,482 1995........................................................ 540,383 1996........................................................ 497,000 1997........................................................ 511,000 1998 (through July 31, 1998)................................ 380,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 3687 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of S-81 3688 AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Shelter Properties VI Limited Partnership appearing in Shelter Properties VI Limited Partnership Annual Report (Form 10-KSB) for the year ended October 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 3689 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3690 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3691 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3692 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3697 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3698 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SHELTER PROPERTIES VII LIMITED PARTNERSHIP IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, your general partner estimated the net asset value of your units to be $636.00 per unit and an affiliate estimated the net liquidation value of your units to be $641.07 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3699 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Comparison Table............................. S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units.. S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Shelter Properties VII Limited Partnership......... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44
PAGE ---- Accounting Treatment......................... S-44 CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-55 STANGER ANALYSIS............................... S-55 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-56 Summary of Reviews........................... S-56 Conclusions.................................. S-57 Assumptions, Limitations and Qualifications............................. S-57 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-65 DESCRIPTION OF PREFERRED OP UNITS.............. S-69 General...................................... S-69 Ranking...................................... S-69 Distributions................................ S-69 Allocation................................... S-70 Liquidation Preference....................... S-70 Redemption................................... S-71 Voting Rights................................ S-71 Restrictions on Transfer..................... S-71 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-74 CONFLICTS OF INTEREST.......................... S-77 Conflicts of Interest with Respect to the Offer...................................... S-77 Conflicts of Interest that Currently Exist for Your Partnership....................... S-77 Competition Among Properties................. S-77
i 3700
PAGE ---- Features Discouraging Potential Takeovers.... S-77 Future Exchange Offers....................... S-77 YOUR PARTNERSHIP............................... S-78 General...................................... S-78 Additional Information Concerning Your Partnership................................ S-78 Originally Anticipated Term of the Partnership................................ S-78 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-79 Property Management.......................... S-79 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79 Distributions................................ S-80 Beneficial Ownership of Interests in Your Partnership................................ S-80
PAGE ---- Compensation Paid to the General Partner and its Affiliates............................. S-80 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-82 EXPERTS........................................ S-82 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3701 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Shelter Properties VII Limited Partnership. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in Shelter Realty VII Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3702 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3703 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $17.53 per unit for the fiscal year ended December 31, 1997. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3704 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $78.00 per unit to $388.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $636.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $641.07 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your S-4 3705 partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that you retain a minimum of three units (except for units held by IRAs and Keogh Plans) if you are not tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, S-5 3706 we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3707 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3708 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $636.00 per unit and an affiliate of your general partner estimated the net liquidation value of your units to be $641.07 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $78.00 per unit to $388.00 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of S-8 3709 factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general S-9 3710 partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 3711 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 3712 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 22.73% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 3713 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 3714 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 3715 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 3716 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 3717 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $78.00 to $388.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 3718 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees for its services as general partner but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements of $47,000 for the first six months of 1998. The property manager received management fees of $97,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Shelter Properties VII Limited Partnership was organized on October 29, 1984, under the laws of the State of South Carolina. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential S-18 3719 capital appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Hickory Ridge Apartments, a 378-unit complex in Memphis, Tennessee and Governor's Park Apartments, a 188-unit complex in Ft. Collins, Colorado. The general partner of your partnership is Shelter Realty VII Corporation, which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 17,343 units of limited partnership interest issued and outstanding, which were held of record by 1,463 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3720 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3721
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3722 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3723
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3724 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3725 SUMMARY FINANCIAL INFORMATION OF SHELTER PROPERTIES VII LIMITED PARTNERSHIP The summary financial information of Shelter Properties VII Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Shelter Properties VII Limited Partnership for the years ended December 31, 1997, 1996 and 1995 based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. SHELTER PROPERTIES VII LIMITED PARTNERSHIP
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- ) (in thousands, except unit data OPERATING DATA: Total Revenues............................................ $ 1,963 $ 1,815 $ 3,806 $ 3,687 $ 3,461 Net Income (Loss)......................................... 224 84 123 220 (78) Net Income (Loss) per limited partnership unit............ 12.80 4.80 7.03 12.56 (4.46) Distributions per limited partnership unit................ -- 17.53 17.53 -- --
JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $11,401 $11,322 $11,541 $11,419 $11,665 Total Assets.............................................. 12,854 12,733 12,742 13,084 12,960 Notes Payable............................................. 11,025 11,202 11,116 11,286 11,436 Partners' Capital (Deficit)............................... 1,387 1,124 1,163 1,344 1,125
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING SHELTER PROPERTIES VII PARTNERSHIP LIMITED PARTNERSHIP ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $ $17.53
S-25 3726 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $78.00 per unit to $388.00 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $636.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, an affiliate of your general partner estimated the net liquidation value of your units to be $641.07 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. S-26 3727 ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. S-27 3728 This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1997 were $17.53 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." S-28 3729 FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your S-29 3730 partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 22.73% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers Prior to the Insignia Merger, a number of tender offers had been made to acquire units of your partnership. In July 1998, an affiliate of Insignia and now our affiliate, commenced a tender offer to acquire 6,000 units (representing approximately 34.60% of the number outstanding) at a cash purchase price of $450 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and S-30 3731 your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-31 3732 There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 3733 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 3734 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you retain a minimum of three units (except for units held by IRAs and Keogh Plans) if you are not tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-34 3735 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 3736 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 3737 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 3738 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 3739 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 3740 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 3741 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 3742 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 3743 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in 44 of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory S-43 3744 damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 3745 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 3746 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 3747 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 3748 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets of the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 3749 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Hickory Ridge Apartments................. $ % $ Governor's Park Apartments...............
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 3750 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 3751 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the fiscal year ended December 31, 1997 were $17.53. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 3752 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 3753 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $78.00 to $388.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 4,382 units (representing approximately 25.3% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to June 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. SHELTER PROPERTIES VII LIMITED PARTNERSHIP REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(A) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. 1$97.50.. $393.00 Second Quarter............................................ 300.00 388.00 First Quarter............................................. 152.00 298.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ 254.33 254.33 Third Quarter............................................. 230.03 230.03 Second Quarter............................................ 137.00 280.00 First Quarter............................................. 170.00 250.39 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 100.00 162.00 Third Quarter............................................. 78.00 254.00 Second Quarter............................................ 118.00 118.00 First Quarter............................................. 78.00 165.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-53 3754 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: Appraisals. Hickory Ridge Apartments and Governor's Park Apartments were appraised in January, 1998, and December, 1997, respectively, by an independent, third party appraiser, Koeppel Tener Real Estate Services, Inc. (the "Appraiser"), in connection with a requirement in your partnership's agreement of limited partnership. According to the appraisal reports, the scope of the appraisals included an inspection of each property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of each of the properties specified in those appraisal reports was $12,700,000 for Hickory Ridge Apartments and $9,600,000 for Governor's Park Apartments. A copy of the summary of the appraisal has been filed as an exhibit to the AIMCO Operating Partnership's Tender Offer Statement on Schedule 14D-1 filed with the SEC. General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with a requirement in your partnership's agreement of limited partnership. That estimate of your partnership's net asset value per unit as of December 31, 1997 was $636.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of S-54 3755 related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and S-55 3756 equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting S-56 3757 your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited S-57 3758 partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 3759 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under South Carolina law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2024. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed for the purpose of The purpose of the AIMCO Operating Partnership is to acquiring existing apartment properties which offer the conduct any business that may be lawfully conducted by potential for appreciation in value and cash a limited partnership organized pursuant to the distributions to the partners from operations. Subject Delaware Revised Uniform Limited Partnership Act (as to restrictions contained in your partnership's amended from time to time, or any successor to such agreement of limited partnership, your partnership may statute) (the "Delaware Limited Partnership Act"), perform all acts necessary, advisable or convenient to provided that such business is to be conducted in a the business of your partnership including borrowing manner that permits AIMCO to be qualified as a REIT, money and creating liens. 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.
S-59 3760 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not less than 5,000 units for cash time to the limited partners and to other persons, and to selected persons who fulfill the requirements set to admit such other persons as additional limited forth in your partnership's agreement of limited partners, on terms and conditions and for such capital partnership. The capital contribution need not be equal contributions as may be established by the general for all limited partners and no action or consent is partner in its sole discretion. The net capital required in connection with the admission of any contribution need not be equal for all OP Unitholders. additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner may not purchase or funds or other assets to its subsidiaries or other lease any real property from your partnership, borrow persons in which it has an equity investment, and such any funds from your partnership, or sell or lease any persons may borrow funds from the AIMCO Operating property to your partnership, either directly or Partnership, on terms and conditions established in the indirectly through an affiliate or any other sole and absolute discretion of the general partner. To partnership in which a general partner has an interest, the extent consistent with the business purpose of the provided, however, that a general partner or an AIMCO Operating Partnership and the permitted affiliate may purchase property in their own name and activities of the general partner, the AIMCO Operating temporarily hold title thereto for your partnership or Partnership may transfer assets to joint ventures, any other purpose related to the business of your limited liability companies, partnerships, partnership, provided further that (1) the property is corporations, business trusts or other business purchased by your partnership for a price no greater entities in which it is or thereby becomes a than the cost of the property to a general partner or participant upon such terms and subject to such affiliate, (2) there is no difference in the interest conditions consistent with the AIMCO Operating Part- rates of the loans secured by the property at the time nership Agreement and applicable law as the general acquired by a general partner or affiliate and at the partner, in its sole and absolute discretion, believes time acquired by your partnership, and (3) neither the to be advisable. Except as expressly permitted by the general partner nor any affiliate receives any other AIMCO Operating Partnership Agreement, neither the economic advantage by reason of holding or having held general partner nor any of its affiliates may sell, title to the property. The general partner may not transfer or convey any property to the AIMCO Operating receive interest and other financing charges on loans Partnership, directly or indirectly, except pursuant to to your partnership in excess of the lesser of the transactions that are determined by the general partner rates currently being paid by a general partner or an in good faith to be fair and reasonable. affiliate for borrowed funds or two points over the South Carolina National Bank prime interest rate, or subject any asset of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by a general partner or any affiliate or provide permanent financing for any assets of your partnership. Subject to certain exceptions, the general partner or an affiliate may subject your partnership's property to a wrap-around or all-inclusive note and mortgage or deed of trust, except that no prepayment charge or penalty may be required by a general partner or an affiliate on a loan to your partnership secured by an all-inclusive trust deed, mortgage or encumbrance on your partnership's property, other than to the extent that such prepayment charge or penalty is attributable to the underlying encumbrance. In addition, your partnership will not grant to a general partner or an affiliate an exclusive right or an exclusive employment to sell your partnership's properties. Your partnership may not enter into any contract with a general partner or an affiliate unless the contract provides that it may be
S-60 3761 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP terminated by your partnership without penalty upon 60 days written notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money on behalf of your partnership. The restrictions on borrowings, and the general partner has general partner cannot, in connection with the full power and authority to borrow money on behalf of acquisition of properties, subject any property of your the AIMCO Operating Partnership. The AIMCO Operating partnership to one or more mortgages, deeds of trust Partnership has credit agreements that restrict, among and other security interests, so that the aggregate other things, its ability to incur indebtedness. See amount of indebtedness secured by mortgages, deeds of "Risk Factors -- Risks of Significant Indebtedness" in trust and other security interests to which all other the accompanying Prospectus. assets of your partnership are subject, immediately after such action, is greater than 80% of the aggregate amount of the purchase prices of such properties or, in connection with the refinancing of a property, subject a property to secured indebtedness exceeding 80% of the value of such property. Except in connection with the acquisition or improvement of properties or the refinancing of previous obligations, the general partner may not mortgage or subject to the encumbrance of a mortgage, deed of trust or other security interest substantially all of the assets of your partnership at one time or from time to time without the approval of limited partners holding a majority of the outstanding units. The general partner also may not obtain mortgage financing on behalf of your partnership unless such financing is fully amortizable in equal payments on a schedule of not more than 30 years. Subject to certain exceptions, all financing, including all-inclusive and wrap-around loans and interest-only loans must provide that no balloon payment may become due sooner than the earlier of: (1) ten years from the date on which your partnership acquires the property, or (2) two years beyond the anticipated holding period of the property, provided in such cases that a balloon payment may not become due sooner than seven years from the date on which your partnership acquires the property. The general partner may not allow any creditor who makes a non-recourse loan to your partnership to have, or to acquire at any time as a result of making such loan, any direct or indirect interest in the profit, gain, capital or other property of your partnership, other than as a secured creditor.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, each partner has the right to receive by with a statement of the purpose of such demand and at mail, upon written request to your partnership and at such OP Unitholder's own expense, to obtain a current his cost, a list of the names and addresses of the list of the name and last known business, residence or limited partners and the number of units held by each mailing address of the general partner and each other of them, provided such request is for a purpose OP Unitholder. reasonably related to such limited partner's interest in your partnership.
Management Control Under your partnership's agreement of limited All management powers over the business and affairs of partnership, the general partner has complete and the AIMCO Operating Partnership are vested in AIMCO-GP, exclusive control over the management of your Inc., which is the general partner. No OP Unitholder partnership's business and affairs, and the limited has any right to participate in or exercise control or partners have no right to participate in the management management power over the business and affairs of the or conduct of your partnership's business or affairs AIMCO Operating Partnership. The OP Unitholders have nor any power or authority to act on behalf of your the right to vote on certain matters described under partnership in any respect whatsoever. Subject to "Comparison of Ownership of Your Units and AIMCO OP certain restrictions in your partnership's agreement of Units -- Voting Rights" below. The general partner may limited partnership, the general partner has the right, not be removed by the OP Unitholders with or without power and authority, on behalf of your partnership, and cause. in its name, to exercise all rights, powers and authority of a partner
S-61 3762 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP of a partnership without limited partners under South In addition to the powers granted a general partner of Carolina partnership law. No limited partner (except a limited partnership under applicable law or that are one who may also be a general partner) may participate granted to the general partner under any other in or has any control over your partnership's business provision of the AIMCO Operating Partnership Agreement, or has any authority to act for or bind your the general partner, subject to the other provisions of partnership. 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 Notwithstanding anything to the contrary set forth in partnership, the general partner is not liable to your the AIMCO Operating Partnership Agreement, the general partnership or the limited partners for act or any partner is not liable to the AIMCO Operating failure to act if such act or failure to act was Partnership for losses sustained, liabilities incurred performed in a manner determined by him or it in good or benefits not derived as a result of errors in faith to be within the scope of his or its authority judgment or mistakes of fact or law of any act or and to be in the best interest of your partnership, and omission if the general partner acted in good faith. if he or it was not guilty of negligence, misconduct or The AIMCO Operating Partnership Agreement provides for a breach of fiduciary obligations in such act or indemnification of AIMCO, or any director or officer of failure to act. In addition, your partnership will AIMCO (in its capacity as the previous general partner indemnify the general partner or its affiliates for any of the AIMCO Operating Partnership), the general act or failure to act as described above. Your partner, any officer or director of general partner or partnership will not furnish any indemnification as to the AIMCO Operating Partnership and such other persons liabilities arising under federal securities laws. The as the general partner may designate from and against indemnification includes payment of reasonable all losses, claims, damages, liabilities, joint or attorney's fees or other expenses incurred in settling several, expenses (including legal fees), fines, any claim or liability or incurred in any finally settlements and other amounts incurred in connection adjudicated judicial proceedings, and expenses incurred with any actions relating to the operations of the by the removal of any liens affecting any property of AIMCO Operating Partnership, as set forth in the AIMCO the person to be indemnified. Indemnification will be Operating Partnership Agreement. The Delaware Limited made from assets of your partnership and no limited Partnership Act provides that subject to the standards partner will be personally liable to any person to be and restrictions, if any, set forth in its partnership indemnified. 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 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and appoint a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning more than 50% of partner may not be removed as general partner of the the outstanding units. A general partner may resign, AIMCO Operating Partnership by the OP Unitholders with with the consent of a majority of the limited partners, or without cause. Under the AIMCO Operating Partnership if: (1) the general partner nominates a substitute Agreement, the general partner may, in its sole general partner whose admission will not terminate the discretion, prevent a transferee of an OP Unit from status of your partnership for federal income tax becoming a substituted limited partner pursuant to the purposes, or (2) the general partner certifies that AIMCO Operating Partnership Agreement. The general your partnership's status for tax purposes will con- partner may exercise this right of approval to deter, tinue without the admission of such substitute general delay or hamper attempts by persons to acquire a partner. No person may be admitted as a substitute controlling interest in the AIMCO Operating Partner- general partner unless:
S-62 3763 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP (1) the remaining general partner consents in writing ship. Additionally, the AIMCO Operating Partnership to the admission of such person; (2) such person agrees Agreement contains restrictions on the ability of OP to become a substitute general partner; (3) the limited Unitholders to transfer their OP Units. See partners holding more than 50% of the outstanding units "Description of OP Units -- Transfers and Withdrawals" consent to the admission of such person; and (4) such in the accompanying Prospectus. person executes and acknowledges such instruments as the general partner deems necessary or advisable, including a written acceptance and adoption of your partnership's agreement of limited partnership.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representations, duties or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, for the benefit of the Partnership Agreement require the consent of the limited partners; (2) cures any ambiguity, corrects or holders of a majority of the outstanding Common OP supplements any provision which may be inconsistent Units, excluding AIMCO and certain other limited with any other provision, or makes any other provisions exclusions (a "Majority in Interest"). Amendments to with respect to matters or questions arising under your the AIMCO Operating Partnership Agreement may be partnership's agreement of limited partnership which proposed by the general partner or by holders of a will not be inconsistent with the provisions of your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership; or (3) general partner will submit any proposed amendment to deletes or adds any provision required by applicable the OP Unitholders. The general partner will seek the law. No amendment may change your partnership to a written consent of the OP Unitholders on the proposed general partnership, extend your partnership's amendment or will call a meeting to vote thereon. See termination date beyond December 31, 2024, or change "Description of OP Units -- Amendment of the AIMCO the liability of the general partner or the limited Operating Partnership Agreement" in the accompanying liability of the limited partners. In addition, any Prospectus. amendment that alters the rights of the general partner under your partnership's agreement of limited partnership may not be made without the consent of the general partner affected. Other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the outstanding units.
Compensation and Fees Your general partner does not receive fees as The general partner does not receive compensation for compensation but may receive reimbursement for expenses its services as general partner of the AIMCO Operating incurred in such capacity. 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 Part- nership 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.
S-63 3764 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, no limited partner is liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or any other obligations the AIMCO Operating Partnership's debts and of your partnership. A limited partner will be liable obligations, and liability of the OP Unitholders for only to make his capital contribution and will not be the AIMCO Operating Partnership's debts and obligations required to lend any funds to your partnership or, is generally limited to the amount of their invest- after his capital contribution is paid, to make any ment in the AIMCO Operating Partnership. However, the further capital contribution to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote such of its time to the business of a general partner of a Delaware limited partnership to your partnership as may be necessary to properly adhere to fiduciary duty standards under which it owes conduct the affairs of your partnership. The general its limited partners the highest duties of good faith, partner has a fiduciary responsibility for the fairness and loyalty and which generally prohibit such safekeeping and use of all funds and assets of your general partner from taking any action or engaging in partnership, whether or not in its immediate possession any transaction as to which it has a conflict of or control and may not employ or permit another to interest. The AIMCO Operating Partnership Agreement employ such funds or assets in any manner except for expressly authorizes the general partner to enter into, the benefit of your partnership. The general partner on behalf of the AIMCO Operating Partnership, a right also may not commingle the funds of your partnership of first opportunity arrangement and other conflict with the funds of any other person. The general partner avoidance agreements with various affiliates of the and any of its affiliates and any of the limited AIMCO Operating Partnership and the general partner, on partners may acquire real properties for their own such terms as the general partner, in its sole and account, or engage in the acquisition, development, absolute discretion, believes are advisable. The AIMCO operation or management of real estate on behalf of Operating Partnership Agreement expressly limits the other partnerships, joint ventures, corporations or liability of the general partner by providing that the other business ventures formed by them or in which they general partner, and its officers and directors will may have an interest, including business ventures not be liable or accountable in damages to the AIMCO similar to, related to or in direct or indirect Operating Partnership, the limited partners or competition with any business of your partnership. assignees for errors in judgment or mistakes of fact or Neither your partnership nor any other partner has any law or of any act or omission if the general partner or right in or to such other business venture or income or such director or officer acted in good faith. See profits derived therefrom. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-64 3765 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with more than 50% of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may: Units will have the same voting such as certain amendments and (1) dissolve your partnership; (2) rights as holders of the Common OP termination of the AIMCO Operating remove the general partner; (3) Units. See "Description of OP Partnership Agreement and certain amend your partnership's agreement Units" in the accompanying transactions such as the of limited partnership, subject to Prospectus. So long as any institution of bankruptcy certain exceptions; (4) appoint a Preferred OP Units are outstand- proceedings, an assignment for the substitute general partner; and (5) ing, in addition to any other vote benefit of creditors and certain approve or disap- or consent of partners required by transfers by the general partner of law or by the its
S-65 3766 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS prove the sale of all or AIMCO Operating Partnership Agree- interest in the AIMCO Operating substantially all of the assets of ment, the affirmative vote or Partnership or the admission of a your partnership. consent of holders of at least 50% successor general partner. of the outstanding Preferred OP A general partner may cause the Units will be necessary for Under the AIMCO Operating Partner- dissolution of your partnership by effecting any amendment of any of ship Agreement, the general partner being removed from office, retiring the provisions of the Partnership has the power to effect the or becoming insolvent. Your Unit Designation of the Preferred acquisition, sale, transfer, partnership will not dissolve but OP Units that materially and exchange or other disposition of will be continued by the limited adversely affects the rights or any assets of the AIMCO Operating partners if: (1) all of the preferences of the holders of the Partnership (including, but not partners elect to continue the Preferred OP Units. The creation or limited to, the exercise or grant business of your partnership and issuance of any class or series of of any conversion, option, appoint one or more substitute gen- partnership units, including, privilege or subscription right or eral partners, or (2) the remaining without limitation, any partner- any other right available in general partner elects to continue ship units that may have rights connection with any assets at any the business within 90 days senior or superior to the Preferred time held by the AIMCO Operating following one of the above events OP Units, shall not be deemed to Partnership) or the merger, and nominates a substitute general materially adversely affect the consolidation, reorganization or partner whose admission will not rights or preferences of the other combination of the AIMCO terminate the status of your holders of Preferred OP Units. With Operating Partnership with or into partnership for federal income tax respect to the exercise of the another entity, all without the purposes, or certifies that your above described voting rights, each consent of the OP Unitholders. partnership's tax status will con- Preferred OP Units shall have one tinue without the admission of such (1) vote per Preferred OP Unit. The general partner may cause the substitute general partner. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations will be made within 60 provided, however, that at any time portion as the general partner may days following the end of each and from time to time on or after in its sole and absolute discretion fiscal quarter. The distributions the fifth anniversary of the issue determine, of Available Cash (as payable to the partners are not date of the Preferred OP Units, the defined in the AIMCO Operating fixed in amount and depend upon the AIMCO Operating Partnership may Partnership Agreement) generated by operating results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which interests in the AIMCO Operating Partnership on such
S-66 3767 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ranks on a parity with its Class H record date. Holders of any other Cumulative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign all or There is no public market for the There is no public market for the part of his units to any person if: Preferred OP Units and the OP Units. The AIMCO Operating Part- (1) such assignment, in the case of Preferred OP Units are not listed nership Agreement restricts the an individual assignor, is not a on any securities exchange. The transferability of the OP Units. fractional unit and, if assignor Preferred OP Units are subject to Until the expiration of one year does not transfer all his restrictions on transfer as set from the date on which an OP interests, such assignor and the forth in the AIMCO Operating Unitholder acquired OP Units, assignee would not hold less than Partnership Agreement. subject to certain exceptions, such three units, except in limited OP Unitholder may not transfer all circumstances and (2) the assignee Pursuant to the AIMCO Operating or any portion of its OP Units to provides a written acceptance and Partnership Agreement, until the any transferee without the consent adoption of your partnership's expiration of one year from the of the general partner, which agreement of limited partnership. date on which a holder of Preferred consent may be withheld in its sole No assignee may become a substitute OP Units acquired Preferred OP and absolute discretion. After the limited partner unless such as- Units, subject to certain expiration of one year, such OP signee executes a written exceptions, such holder of Unitholder has the right to acceptance and adoption of your Preferred OP Units may not transfer transfer all or any portion of its partnership's agreement of limited all or any portion of its Pre- OP Units to any person, subject to partnership and pays all reason- ferred OP Units to any transferee the satisfaction of certain able expenses connected to such without the consent of the general conditions specified in the AIMCO assignment. partner, which consent may be Operating Partnership Agreement, withheld in its sole and absolute including the general partner's discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units --
S-67 3768 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Units has the right to transfer Transfers and Withdrawals" in the all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of certain After the first anniversary of conditions specified in the AIMCO becoming a holder of Common OP Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO Operating Partnership Agreement, to require After a one-year holding period, a the AIMCO Operating Partnership to holder may redeem Preferred OP redeem all or a portion of the Units and receive in exchange Common OP Units held by such party therefor, at the AIMCO Operating in exchange for a cash amount based Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-68 3769 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-69 3770 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-70 3771 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-71 3772 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-72 3773 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-73 3774 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-74 3775 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-75 3776 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-76 3777 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive an annual management fee but may receive reimbursement for expenses incurred in its capacity as general partner. The general partner of your partnership received fees and reimbursements totaling $97,000 in 1996, $136,000 in 1997 and $47,000 for expenses for the first six months of 1998. The property manager received $182,000 in 1996, $184,000 in 1997 and $97,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-77 3778 YOUR PARTNERSHIP GENERAL Shelter Properties VII Limited Partnership was organized on October 29, 1984, under the laws of the State of South Carolina. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Hickory Ridge Apartments, a 378- unit complex in Memphis, Tennessee and Governor's Park Apartments, a 188-unit complex in Ft. Collins, Colorado. The general partner of your partnership is Shelter Realty VII Corporation, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 17,343 units issued and outstanding, which were held of record by 1,463 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated March 18, 1985, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the third year after the investments were made and had sold all of their properties after eight years of ownership. The prospectus further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the properties and that the partnership acquired such properties for investment rather than resale. In any event, according to the prospectus, the general partner anticipated that a disposition of the properties would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2024, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-78 3779 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner is not liable to your partnership or the limited partners for any act or failure to act if such act or failure to act was performed in a manner determined by him or it in good faith to be within the scope of his or its authority and to be in the best interest of your partnership, and if he or it was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner and any of its affiliates or your partnership's employees, against any claim or liability by or to any person other than your partnership, for any act or failure to act if such act or failure to act was performed in a manner determined by him or it in good faith to be within the scope of his or its authority and to be in the best interest of your partnership, and if he or it was not guilty of negligence, misconduct or a breach of fiduciary obligations in such act or failure to act, provided however, that your partnership will not furnish any indemnification as to liabilities arising under federal securities laws. The indemnification includes payment of reasonable attorney's fees or other expenses incurred in settling any claim or liability or incurred in any finally adjudicated judicial proceedings, and expenses incurred by the removal of any liens affecting any property of the person to be indemnified. Indemnification will be made from assets of your partnership and no limited partner will be personally liable to any person to be indemnified. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. S-79 3780 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 17.30 January 1, 1998 - June 30, 1998............................. 0.00
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 22.95% interest in your partnership as general partner of your partnership, including 18,592 units held by us and the interest held by Shelter Realty VII Corporation, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 54,614 1995........................................................ 67,708 1996........................................................ 97,000 1997........................................................ 136,000 1998 (through June 30)...................................... 47,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $164,638 1995........................................................ 171,277 1996........................................................ 182,000 1997........................................................ 184,000 1998 (through June 30)...................................... 97,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-80 3781 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-81 3782 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Shelter Properties VII Limited Partnership appearing in Shelter Properties VII Limited Partnership Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-82 3783 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3784 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3785 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3786 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3787
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3788
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3789
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3790
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3791 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3792 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in an apartment project to holding an interest in our large portfolio of properties. In the future, the apartment project owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3793 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units.. S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Springhill Lake Investors Limited Partnership......... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43
PAGE ---- Accounting Treatment......................... S-43 CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-52 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-54 Assumptions, Limitations and Qualifications............................. S-54 Compensation and Material Relationships...... S-55 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-56 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-61 DESCRIPTION OF PREFERRED OP UNITS.............. S-65 General...................................... S-65 Ranking...................................... S-65 Distributions................................ S-65 Allocation................................... S-66 Liquidation Preference....................... S-66 Redemption................................... S-67 Voting Rights................................ S-67 Restrictions on Transfer..................... S-67 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-68 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-70 CONFLICTS OF INTEREST.......................... S-73 Conflicts of Interest with Respect to the Offer...................................... S-73 Conflicts of Interest that Currently Exist for Your Partnership....................... S-73 Competition Among Properties................. S-73 Features Discouraging Potential Takeovers.... S-73 Future Exchange Offers....................... S-73
i 3794
PAGE ---- YOUR PARTNERSHIP............................... S-74 General...................................... S-74 Additional Information Concerning Your Partnership................................ S-74 Termination of Your Partnership.............. S-74 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-75 Property Management.......................... S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-75 Distributions................................ S-75 Beneficial Ownership of Interests in Your Partnership................................ S-75 Compensation Paid to the General Partner and its Affiliates............................. S-76
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-76 LEGAL MATTERS.................................. S-77 EXPERTS........................................ S-77 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3795 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Springhill Lake Investors Limited Partnership. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired an indirect interest in and control over Three Winthrop Properties, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3796 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3797 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership did not pay any distributions for the six months ended June 30, 1998. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in an apartment project to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3798 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $ per unit to $ per unit from January 1, 1997 to September 30, 1998. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 3799 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3800 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3801 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired an indirect interest in and control of the general partner of your partnership and a majority ownership interest in the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3802 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $ per unit to $ per unit from January 1, 1997 through September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 3803 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages an apartment project to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 3804 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 3805 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 3806 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired an indirect interest in and control of the general partner of your partnership and a majority ownership interest in the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 37.2% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 3807 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 3808 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 3809 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 3810 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 3811 FAIRNESS OF THE OFFER Fairness to Unitholders. We have an indirect interest in and control over your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $ to $ Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 3812 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to $10,000 and may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $137,000 for the first six months of 1998. The property manager received management fees of $368,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's apartment complex and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Springhill Lake Investors Limited Partnership was organized on December 28, 1984, under the laws of the State of Maryland. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of an ownership interest in an apartment project, located in Greenbelt, Maryland, that consists of 2,899 apartment and townhouse units and an eight-store shopping center. The general partner of your partnership is Three Winthrop Properties, Inc., and we have an indirect interest in and control over your S-18 3813 general partner. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the apartment project owned by your partnership. As of March 15, 1998, there were 649 units of limited partnership interest issued and outstanding, which were held of record by 433 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3814 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3815
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3816 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3817
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3818 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3819 SUMMARY FINANCIAL INFORMATION OF SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP The summary financial information of Springhill Lake Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Springhill Lake Investors Limited Partnership for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, ENDED DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- ) (IN THOUSANDS, EXCEPT UNIT DATA OPERATING DATA: Total Revenues.............................................. $12,526 $12,375 $25,218 $24,471 $23,468 Net Income (Loss)........................................... 552 167 406 (692) (1,161) Net Income (Loss) per limited partnership unit.............. 807 245 594 (1,013) (1,699) Distributions per limited partnership unit.................. -- -- -- 1,630 2,000
JUNE 30, DECEMBER 31, ------------------- ------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $53,351 $54,509 $54,093 $55,682 $55,662 Total Assets................................................ 62,330 62,237 62,627 63,629 64,180 Notes Payable............................................... 57,807 59,052 58,498 59,684 60,867 Partners' Capital (Deficit)................................. (805) (1,597) (1,357) (1,763) 42
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING SPRINGHILL LAKE INVESTORS PARTNERSHIP LIMITED PARTNERSHIP ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $ 0.00 $0.00
S-25 3820 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $ per unit to $ per unit from January 1, 1997 to September 30, 1998. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's property may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's property, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's property by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 3821 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages an apartment project. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 3822 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 3823 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The managing general partner of your partnership is Three Winthrop Properties, Inc. Insignia Financial Group, Inc. owns the Class B stock of Three Winthrop Properties, Inc. and, through by-law provisions, controls your general partner of your partnership. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the property owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 37.2% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and S-29 3824 increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers On February 1, 1995, Aquarius Acquisition, L.P., which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $36,400 per unit and purchased 216.65 units in March, 1995. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to S-30 3825 continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 3826 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 3827 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that you tender a minimum of 1/2 units, unless the general partner consents or such interest constitutes all of your units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 3828 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 3829 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 3830 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 3831 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns an indirect interest in and controls the general partner of your partnership and thereby controls the S-37 3832 management of your partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership S-38 3833 shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options S-39 3834 to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 3835 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 1.0 units in your partnership have been transferred during the nine months ended September 30, 1998 (representing approximately 0.15% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 3836 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 3837 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 3838 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 3839 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 3840 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 3841 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated the property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Springhill Lake Apartments............... $ % $
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 3842 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has an indirect ownership interest in and controls the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 3843 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $0.00. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 3844 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 3845 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $ to $ Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1998 to September 30, 1998 an aggregate of 1 unit (representing less than 0.15% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ------------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT -------------- -------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 23,500.00 $ 23,500.00 Second Quarter............................................ No Activity No Activity First Quarter............................................. No Activity No Activity Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-51 3846 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed S-52 3847 by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. S-53 3848 SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure S-54 3849 and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-55 3850 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Maryland law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of 2035. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire a general The purpose of the AIMCO Operating Partnership is to partner interest in the operating partnership, to hold, conduct any business that may be lawfully conducted by own, maintain, sell, transfer, convey, exchange, a limited partnership organized pursuant to the otherwise dispose of and deal in or with such Delaware Revised Uniform Limited Partnership Act (as partnership interest and in connection therewith to amended from time to time, or any successor to such exercise all of the powers of a general partner in the statute) (the "Delaware Limited Partnership Act"), operating partnership, and further invest in the assets provided that such business is to be conducted in a of your partnership in interim short-term investments manner that permits AIMCO to be qualified as a REIT, as authorized by your partnership's agreement of unless AIMCO ceases to qualify as a REIT. The AIMCO limited partnership. Subject to restrictions contained Operating Partnership is authorized to perform any and in your partnership's agreement of limited partnership, all acts for the furtherance of the purposes and your partnership may perform all acts necessary, business of the AIMCO Operating Partnership, provided advisable or convenient to the business of your that the AIMCO Operating Partnership may not take, or partnership, including borrowing money and creating refrain from taking, any action which, in the judgment liens. 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.
S-56 3851 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership was authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling not more than 649 units for cash time to the limited partners and to other persons, and and notes to selected persons who fulfill the to admit such other persons as additional limited requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital of limited partnership. The capital contribution need contributions as may be established by the general not be equal for all limited partners and no action or partner in its sole discretion. The net capital consent is required in connection with the admission of contribution need not be equal for all OP Unitholders. any additional limited partners. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Your partnership's agreement of limited partnership The AIMCO Operating Partnership may lend or contribute specifies certain transactions that your partnership funds or other assets to its subsidiaries or other has entered into with the general partner or its persons in which it has an equity investment, and such affiliates. Your partnership may borrow funds from the persons may borrow funds from the AIMCO Operating general partner. 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 Part- nership 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 general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and issue evidences of indebtedness in restrictions on borrowings, and the general partner has furtherance of any or all of the purposes of your full power and authority to borrow money on behalf of partnership and to secure the same by mortgage, pledge the AIMCO Operating Partnership. The AIMCO Operating or other lien on any of the assets of your partnership. Partnership has credit agreements that restrict, among The general partner may also borrow money on the other things, its ability to incur indebtedness. See general credit of your partnership for use in your "Risk Factors -- Risks of Significant Indebtedness" in partnership's business and to take any action and enter the accompanying Prospectus. into any agreements which may be necessary or advisable in connection therewith. The general partner may decrease or increase the mortgage secured by your partnership's interests in the operating partnership, at or before the acquisition of your partnership's properties and may refinance the mortgage at any time thereafter.
S-57 3852 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage the business of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder signature and to take any action it deems necessary in has any right to participate in or exercise control or connection with the business of your partnership. management power over the business and affairs of the Limited partners have no authority or right to act for AIMCO Operating Partnership. The OP Unitholders have or on behalf of your partnership or participate in or the right to vote on certain matters described under have any control over your partnership's business, "Comparison of Ownership of Your Units and AIMCO OP except as required by law. Units -- Voting Rights" 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general not liable, responsible or accountable for damages or partner is not liable to the AIMCO Operating otherwise to any limited partner for any act performed Partnership for losses sustained, liabilities incurred within the scope of the authority conferred by your or benefits not derived as a result of errors in partnership's agreement of limited partnership, except judgment or mistakes of fact or law of any act or for acts of fraud, negligence or willful misconduct. In omission if the general partner acted in good faith. addition, your partnership will indemnify the general The AIMCO Operating Partnership Agreement provides for partner for any act or omission which it reasonably indemnification of AIMCO, or any director or officer of believed was performed or omitted by it within the AIMCO (in its capacity as the previous general partner scope of the authority conferred upon it by your of the AIMCO Operating Partnership), the general partnership's agreement of limited partnership. Any partner, any officer or director of general partner or indemnity will be paid from, and only to the extent of, the AIMCO Operating Partnership and such other persons your partnership's assets. 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 Limited Partnership Act provides that
S-58 3853 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Securities and Exchange Commis- sion 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. A general partner partner may not be removed as general partner of the may withdraw voluntarily from your partnership only if AIMCO Operating Partnership by the OP Unitholders with another general partner remains. The general partner or without cause. Under the AIMCO Operating Partnership may admit any person as an additional or substitute Agreement, the general partner may, in its sole general partner if the consent of the limited partners discretion, prevent a transferee of an OP Unit from holding a majority of the outstanding units is becoming a substituted limited partner pursuant to the obtained. A limited partner may substitute a transferee AIMCO Operating Partnership Agreement. The general of his units in such limited partner's place without partner may exercise this right of approval to deter, the consent of the general partner, subject to certain delay or hamper attempts by persons to acquire a conditions. controlling interest in the AIMCO Operating Partner- ship. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) cures the general partner may, without the consent of the OP any ambiguity, corrects or supplements any provision Unitholders, amend the AIMCO Operating Partnership which may be inconsistent with any other provision or Agreement, amendments to the AIMCO Operating (2) deletes or adds any provision required by any Partnership Agreement require the consent of the applicable law. No amendment which adversely affects holders of a majority of the outstanding Common OP the rights or liabilities of a partner may be adopted Units, excluding AIMCO and certain other limited without the consent of the affected partner. Amendments exclusions (a "Majority in Interest"). Amendments to which increase the amount of the capital contributions the AIMCO Operating Partnership Agreement may be of the limited partners, extend the term of your proposed by the general partner or by holders of a partnership, change the method or accelerate the date Majority in Interest. Following such proposal, the of payment of the capital contribution or otherwise general partner will submit any proposed amendment to increase the liability of the limited partners, affect the OP Unitholders. The general partner will seek the the right of the limited partners as to allocation and written consent of the OP Unitholders on the proposed distributions or amend the amendment provisions require amendment or will call a meeting to vote thereon. See the approval of all of the limited partners. All other "Description of OP Units -- Amendment of the AIMCO amendments require the consent of the general partner Operating Partnership Agreement" in the accompanying and the limited partners holding a majority of the Prospectus. outstanding units.
Compensation and Fees The general partner of your partnership receives an The general partner does not receive compensation for annual fee of $10,000 for its services as general its services as general partner of the AIMCO Operating partner of your partnership but may receive Partnership. However, the general partner is entitled reimbursement for expenses incurred in such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-59 3854 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, a limited partner is not liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for payment of his capital contribution and interest the AIMCO Operating Partnership's debts and obligations thereon, as and when due under your partnership's is generally limited to the amount of their invest- agreement of limited partnership. After his capital ment in the AIMCO Operating Partnership. However, the contribution is fully paid, no limited partner will be limitations on the liability of limited partners for required to make any further capital contributions or the obligations of a limited partnership have not been lend any funds to your partnership, except as required clearly established in some states. If it were by applicable law. determined that the AIMCO Operating Partnership had been conducting business in any state without compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner must diligently and partnership agreement, Delaware law generally requires faithfully devote such of its time to the business of a general partner of a Delaware limited partnership to your partnership as may be necessary to conduct such adhere to fiduciary duty standards under which it owes business and must at all times act in a fiduciary its limited partners the highest duties of good faith, manner toward your partnership and the limited fairness and loyalty and which generally prohibit such partners. 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 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 consid-
S-60 3855 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ered a "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; approve the admission of a Preferred OP Units are outstand- proceedings, an assignment for the substituted general partner; ing, in addition to any other vote benefit of creditors and certain approve or disapprove the sale in or consent of partners required by transfers by the general partner of single law or by the its
S-61 3856 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS sale or a series of sales which are AIMCO Operating Partnership Agree- interest in the AIMCO Operating part of single transaction of ment, the affirmative vote or Partnership or the admission of a substantially all of the assets of consent of holders of at least 50% successor general partner. your partnership and terminate the of the outstanding Preferred OP employment of an affiliate of your Units will be necessary for Under the AIMCO Operating Partner- general partner. effecting any amendment of any of ship Agreement, the general partner the provisions of the Partnership has the power to effect the A general partner may cause the Unit Designation of the Preferred acquisition, sale, transfer, dissolution of your partnership by OP Units that materially and exchange or other disposition of retiring. In such event, your adversely affects the rights or any assets of the AIMCO Operating partnership may be continued by the preferences of the holders of the Partnership (including, but not remaining general partner if, in Preferred OP Units. The creation or limited to, the exercise or grant the opinion of counsel to your issuance of any class or series of of any conversion, option, partnership, such election would partnership units, including, privilege or subscription right or not jeopardize your partnership's without limitation, any partner- any other right available in status as a partnership for tax ship units that may have rights connection with any assets at any purposes. If no general partner senior or superior to the Preferred time held by the AIMCO Operating remains, your partnership may OP Units, shall not be deemed to Partnership) or the merger, continue if, within ninety days of materially adversely affect the consolidation, reorganization or the retirement, the limited rights or preferences of the other combination of the AIMCO partners holding more than 50% of holders of Preferred OP Units. With Operating Partnership with or into the units elect a substitute respect to the exercise of the another entity, all without the general partner who is willing to above described voting rights, each consent of the OP Unitholders. continue your partnership. Preferred OP Units shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Cash Available $ per Preferred OP Unit; tribute quarterly all, or such Flow will be made at such provided, however, that at any time portion as the general partner may reasonable intervals during the and from time to time on or after in its sole and absolute discretion fiscal year as is determined by the fifth anniversary of the issue determine, of Available Cash (as your general partner and in any date of the Preferred OP Units, the defined in the AIMCO Operating event will be made sixty days after AIMCO Operating Partnership may Partnership Agreement) generated by the close of each fiscal year. The adjust the annual distribution rate the AIMCO Operating Partnership distributions payable to the on the Preferred OP Units to the during such quarter to the general partners are not fixed in amount lower of (i) % plus the annual partner, the special limited and depend upon the operating interest rate then applicable to partner and the holders of Common results and net sales or U.S. Treasury notes with a maturity OP Units on the record date refinancing proceeds available from of five years, and (ii) the annual established by the general partner the disposition of your dividend rate on the most recently with respect to such quarter, in partnership's assets. issued AIMCO non-convertible accordance with their respective preferred stock which interests in the AIMCO Operating Partnership on such
S-62 3857 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ranks on a parity with its Class H record date. Holders of any other Cumulative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) the Preferred OP Units and the OP Units. The AIMCO Operating Part- general partner consents to the Preferred OP Units are not listed nership Agreement restricts the transfer, (2) the transferee is not on any securities exchange. The transferability of the OP Units. a minor, except in limited circum- Preferred OP Units are subject to Until the expiration of one year stances, or an incompetent, (3) the restrictions on transfer as set from the date on which an OP interest transferred is not less forth in the AIMCO Operating Unitholder acquired OP Units, than 1/2 an interest unless the Partnership Agreement. subject to certain exceptions, such general partner consents or such OP Unitholder may not transfer all interest constitutes the entire Pursuant to the AIMCO Operating or any portion of its OP Units to interest of the transferor, (4) Partnership Agreement, until the any transferee without the consent when added to all other transfers expiration of one year from the of the general partner, which made within the preceding 12 date on which a holder of Preferred consent may be withheld in its sole months, such transfer would not OP Units acquired Preferred OP and absolute discretion. After the result in the termination of your Units, subject to certain expiration of one year, such OP partnership for Federal tax exceptions, such holder of Unitholder has the right to purposes and (5) the transfer Preferred OP Units may not transfer transfer all or any portion of its complies with the then-applicable all or any portion of its Pre- OP Units to any person, subject to rules and regulation of any gov- ferred OP Units to any transferee the satisfaction of certain ernmental authority with without the consent of the general conditions specified in the AIMCO jurisdiction over the disposition. partner, which consent may be Operating Partnership Agreement, In addition, the general partner withheld in its sole and absolute including the general partner's may require the transferor to: (1) discretion. After the expiration of right of first refusal. See assume all cost incurred by your one year, such holders of Preferred "Description of OP Units -- partnership in connection with the transaction
S-63 3858 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and (2) furnish a legal opinion OP Units has the right to transfer Transfers and Withdrawals" in the satisfactory to counsel for your all or any portion of its Preferred accompanying Prospectus. partnership that such transfer OP Units to any person, subject to complies with applicable state and the satisfaction of certain After the first anniversary of Federal securities and other ap- conditions specified in the AIMCO becoming a holder of Common OP plicable laws. A transferee may Operating Partnership Agreement, Units, an OP Unitholder has the become a substituted limited including the general partner's right, subject to the terms and partner if: (1) the general partner right of first refusal. conditions of the AIMCO Operating consents and (2) the instruments of Partnership Agreement, to require assignment make such an election. After a one-year holding period, a the AIMCO Operating Partnership to holder may redeem Preferred OP redeem all or a portion of the Units and receive in exchange Common OP Units held by such party therefor, at the AIMCO Operating in exchange for a cash amount based Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-64 3859 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-65 3860 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-66 3861 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-67 3862 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-68 3863 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-69 3864 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-70 3865 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-71 3866 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-72 3867 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have an indirect ownership interest in and control over the general partner of your partnership and we have a majority interest in the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to $10,000 for its services as general partner of your partnership and may receive reimbursement for expenses incurred in such capacity. The general manager received fees and reimbursements totaling $110,000 in 1996, $110,000 in 1997, and $137,000 for the first six months of 1998. The property manager received management fees of $699,000 in 1996, $728,000 in 1997 and $368,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-73 3868 YOUR PARTNERSHIP GENERAL Springhill Lake Investors Limited Partnership was organized on December 28, 1984, under the laws of the State of Maryland. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of an ownership interest in an apartment project, located in Greenbelt, Maryland, that consists of 2,899 apartment and townhouse units and an eight-store shopping center. The general partner of your partnership is Three Winthrop Properties, Inc., and we have an indirect interest in and control over your general partner. Insignia Residential Group, L.P., which is a majority-owned subsidiary of AIMCO, serves as manager of the apartment project owned by your partnership. As of March 15, 1998, there were 649 units of limited partnership interest issued and outstanding, which were held of record by 433 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. TERMINATION OF YOUR PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all S-74 3869 considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership is not liable, responsible or accountable for damages or otherwise to any limited partner for any act performed within the scope of the authority conferred by your partnership's agreement of limited partnership, except for acts of fraud, negligence or willful misconduct. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify the general partner for any act or omission which it reasonably believed was performed or omitted by it within the scope of the authority conferred upon it by your partnership's agreement of limited partnership. Any indemnity will be paid from, and only to the extent of, your partnership's assets. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $62,500.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $2,000.00 January 1, 1996 - December 31, 1996......................... 1,630.00 January 1, 1997 - December 31, 1997......................... 0 January 1, 1998 - June 30, 1998............................. 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 37.2% limited partnership interest in your partnership, including 241.15 units held by us. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. S-75 3870 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ $ 110,000 1997........................................................ 110,000 1998 (through June 30)...................................... 137,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ $ 699,000 1997........................................................ 728,000 1998 (through June 30)...................................... 368,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility S-76 3871 provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Springhill Lake Investors Limited Partnership appearing in Springhill Lake Investors Limited Partnership Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-77 3872 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which indirectly owns interest in and controls the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3873 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3874 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3875 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3876
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3877
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3878
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3879
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3880 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3881 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF U.S. REALTY PARTNERS LIMITED PARTNERSHIP IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3882 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-16 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-17 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of U.S. Realty Partners Limited Partnership............... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-30 Background of the Offer...................... S-30 Alternatives Considered...................... S-31 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 VALUATION OF UNITS............................. S-48 FAIRNESS OF THE OFFER.......................... S-49 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-49 Fairness to Unitholders who Tender their Units...................................... S-50 Fairness to Unitholders who do not Tender their Units................................ S-51 Comparison of Consideration to Alternative Consideration.............................. S-51 Allocation of Consideration.................. S-53 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-54 Summary of Materials Considered.............. S-54 Summary of Reviews........................... S-55 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-63 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75 YOUR PARTNERSHIP............................... S-76 General...................................... S-76
i 3883
PAGE ---- Additional Information Concerning Your Partnership................................ S-76 Originally Anticipated Term of the Partnership................................ S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-76 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3884 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in U.S. Realty Partners Limited Partnership. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in U.S. Realty I Corporation, the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3885 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3886 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership has not paid any distributions in the last three and one-half years. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3887 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. The general partner is not aware of any secondary market activity in the units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. S-4 3888 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3889 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3890 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3891 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Your general partner is unaware of any secondary market activity in the units. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. S-8 3892 UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property S-9 3893 manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in S-10 3894 order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else acquires shares S-11 3895 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 6.6% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of S-12 3896 distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. S-13 3897 - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; S-14 3898 - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS S-15 3899 PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or S-16 3900 your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ No Activity Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, S-17 3901 voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive, and has not received, an annual management fee, but may be reimbursed for expenses occurred in its capacity as general partner. The general partner was reimbursed $58,000 for expenses it incurred during the first six months of 1998. The property manager received management fees of $147,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP U.S. Realty Partners Limited Partnership was organized on January 24, 1986, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes and two retail complexes: Governor's Park Apartments, a 154-unit complex in Little Rock, Arkansas; Twin Lakes Apartments, a 262-unit complex in Palm Harbor, Florida; The Gallery-Huntsville, a 101,000 square-foot retail complex in Hunstville, Alabama; and The Gallery-Knoxville, a 100,000 square-foot retail complex in Knoxville, Tennessee. The general partner of your partnership is U.S. Realty I Corporation, which is a majority-owned subsidiary of AIMCO. Insignia Financial Group, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 1,222,000 units of limited partnership interest issued and outstanding, which were held of record by 2,033 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about S-18 3902 your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3903 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3904
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3905 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3906
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3907 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 3908 SUMMARY FINANCIAL INFORMATION OF U.S. REALTY PARTNERS LIMITED PARTNERSHIP The summary financial information of U.S. Realty Partners Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for U.S. Realty Partners Limited Partnership for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. U.S. REALTY PARTNERS LIMITED PARTNERSHIP
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues.............................................. $ 2,746 $ 2,710 $ 5,375 $ 5,266 $ 5,180 Net Income (Loss)........................................... 104 24 (248) (258) (278) Net Income (Loss) per limited partnership unit.............. 0.08 0.02 0.20 0.21 0.23 Distributions per limited partnership unit.................. -- -- -- -- --
JUNE 30, DECEMBER 31, ------------------- ------------------------------ 1998 1997 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation................ $ 22,443 $ 23,105 $ 22,783 $ 23,484 $ 24,145 Total Assets................................................ 24,054 24,650 24,126 24,641 25,370 Notes Payable............................................... 20,857 21,367 21,158 21,607 22,061 Partners' Capital (Deficit)................................. 1,720 1,888 1,616 1,864 2,121
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING U.S. REALTY PARTNERS PARTNERSHIP LIMITED PARTNERSHIP ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $0.00
S-25 3909 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current S-26 3910 position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. S-27 3911 UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the past three and one-half years ended June 30, 1998 were $0.00 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. S-28 3912 RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. S-29 3913 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in Insignia Financial Group, Inc., which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 6.6 % interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers On September 4, 1998, Madison Liquidity Investors 100, LLC, which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $2.05 per unit. We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. S-30 3914 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. S-31 3915 There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 3916 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 3917 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 3918 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 3919 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 3920 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 3921 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-38 3922 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-39 3923 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-40 3924 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 3925 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately % of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-42 3926 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and S-43 3927 Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 3928 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 3929 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 3930 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 3931 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- The Gallery -- Huntsville................ $ % $ The Gallery -- Knoxville................. Governor's Park Apartments............... Twin Lakes Apartments....................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-48 3932 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-49 3933 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the last three and one half years were $0.00. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-50 3934 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-51 3935 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ Not Available Estimated liquidation proceeds............................ $
Prices on Secondary Market There is no active market for the units. The general partner of your partnership is unaware of any secondary market activity in the units. Therefore, any comparison to prices on the secondary market is not possible at the present time. U.S. REALTY PARTNERS LIMITED PARTNERSHIP REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) -------------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are S-52 3936 the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. S-53 3937 We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. S-54 3938 SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure S-55 3939 and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 3940 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Delaware law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2005. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities The purpose and character of the business of your The purpose of the AIMCO Operating Partnership is to partnership is to acquire, hold, maintain, finance, conduct any business that may be lawfully conducted by develop, operate, sell, loan and borrow money in a limited partnership organized pursuant to the connection with, improve, lease, dispose of and Delaware Revised Uniform Limited Partnership Act (as otherwise acquire, invest in and deal with commercial, amended from time to time, or any successor to such residential and combined office/warehouse real estate statute) (the "Delaware Limited Partnership Act"), that offers cash distributions to the partners from provided that such business is to be conducted in a operations and the potential for appreciation in value manner that permits AIMCO to be qualified as a REIT, and to engage in any other activities related or unless AIMCO ceases to qualify as a REIT. The AIMCO incidental thereto. Subject to restrictions contained Operating Partnership is authorized to perform any and in your partnership's agreement of limited partnership, all acts for the furtherance of the purposes and your partnership may perform all act necessary, business of the AIMCO Operating Partnership, provided advisable or convenient to the business of your that the AIMCO Operating Partnership may not take, or partnership including borrowing money and creating refrain from taking, any action which, in the judgment liens. 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.
S-57 3941 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling up to 2,444,000 units for cash to time to the limited partners and to other persons, and selected persons who fulfill the requirements set forth to admit such other persons as additional limited in your partnership's agreement of limited partner- partners, on terms and conditions and for such capital ship. The general partner may make a subsequent contributions as may be established by the general offering within 18 months after the date of prospectus partner in its sole discretion. The net capital for the first offering, the terms and conditions of contribution need not be equal for all OP Unitholders. which will be as it determined in good faith to be in No action or consent by the OP Unitholders is required the best interests of your partnership. The general in connection with the admission of any additional OP partner also must determine that the addition of Unitholder. See "Description of OP Units -- Management limited partners will not result in any material by the AIMCO GP" in the accompanying Prospectus. dilutive effect on the interest in your partnership of, Subject to Delaware law, any additional partnership or a long-term material adverse effect on, the existing interests may be issued in one or more classes, or one unitholders. No partner shall have any preemptive, or more series of any of such classes, with such preferential, or other right with respect to such designations, preferences and relative, partici- issuance. The capital contribution need not be equal pating, optional or other special rights, powers and for all limited partners and no action or consent is duties as shall be determined by the general partner, required in connection with the admission of any in its sole and absolute discretion without the additional limited partners. 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 Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner shall not purchase or funds or other assets to its subsidiaries or other lease any real property from your partnership, borrow persons in which it has an equity investment, and such any funds from your partnership, or sell or lease any persons may borrow funds from the AIMCO Operating property to your partnership, either directly or Partnership, on terms and conditions established in the indirectly through an affiliate or any other sole and absolute discretion of the general partner. To partnership in which a general partner has an interest, the extent consistent with the business purpose of the provided, however, that a general partner or an AIMCO Operating Partnership and the permitted affiliate may purchase property in their own name and activities of the general partner, the AIMCO Operating temporarily hold title thereto for your partnership or Partnership may transfer assets to joint ventures, any other purpose related to the business of your limited liability companies, partnerships, partnership, provided further that (1) the property is corporations, business trusts or other business purchased by your partnership for a price no greater entities in which it is or thereby becomes a than the cost of the property to a general partner or participant upon such terms and subject to such affiliate, (2) there is no difference in the interest conditions consistent with the AIMCO Operating Part- rates of the loans secured by the property at the time nership Agreement and applicable law as the general acquired by a general partner or affiliate and at the partner, in its sole and absolute discretion, believes time acquired by your partnership and (3) neither the to be advisable. Except as expressly permitted by the general partner nor any affiliate receives any other AIMCO Operating Partnership Agreement, neither the economic advantage by reason of holding or having held general partner nor any of its affiliates may sell, title to the property. The general partner shall not transfer or convey any property to the AIMCO Operating receive interest and other financing charges on loans Partnership, directly or indirectly, except pursuant to to your partnership in excess of the lesser of the transactions that are determined by the general partner rates currently being paid by the general partner or an in good faith to be fair and reasonable. affiliate for borrowed funds or two points over the Citibank N.A. prime interest rate, or subject any asset of your partnership to a mortgage, deed of trust or security interest as security for repayment of a loan to your partnership by a general partner or any affiliate or provide permanent financing for any assets of your partnership. Subject to certain exceptions, the general partner or an affiliate may subject your partnership's property to a wrap-around or all-inclusive note and mortgage or deed of trust, except that no prepayment charge or penalty may be required by a general partner or an affiliate on a loan to your partnership secured by an all-inclusive trust deed, mortgage or encumbrance on your partnership's property, other than to the extent that such prepayment charge or penalty is attributable to the underlying encumbrance. In addition, your partnership will not grant to a general partner or an affiliate an exclusive right or an exclusive employment to sell your partnership's properties. Your partnership shall not enter into any contract with a general partner or an affiliate unless the contract provides that it may be
S-58 3942 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP terminated by your partnership without penalty upon 60 days written notice.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money on behalf of your partnership. The restrictions on borrowings, and the general partner has general partner cannot, in connection with the full power and authority to borrow money on behalf of refinancing of a property, subject a property to the AIMCO Operating Partnership. The AIMCO Operating secured indebtedness exceeding 80% of the value of such Partnership has credit agreements that restrict, among property. Except in connection with the acquisition or other things, its ability to incur indebtedness. See improvement of properties or the refinancing of "Risk Factors -- Risks of Significant Indebtedness" in previous obligations, the general partner shall not the accompanying Prospectus. mortgage or subject to the encumbrance of a mortgage, deed of trust or other security interest substantially all of the assets of your partnership at one time or from time to time without the approval of limited partners holding a majority of the outstanding units. The general partner also shall not obtain mortgage financing on behalf of your partnership or acquire properties subject to existing financing unless such financing is fully amortizable in equal payments on a schedule of not more than 30 years. All financing, including all-inclusive and wrap-around loans and interest-only loans, must provide that no balloon payment may become due sooner than the earlier of: (1) ten years from the date on which your partnership acquires the property, or (2) two years beyond the anticipated holding period of the property, provided in such case that a balloon payment shall not become due sooner than seven years from the date on which your partnership acquires the property. The general partner shall not allow any creditor who makes a non-recourse loan to your partnership to have, or to acquire at any time as a result of making such loan, any direct or indirect interest in the profit, gain, capital or other property of your partnership, other than as a secured creditor.
Review of Investor Lists Under your partnership's agreement of limited Each OP Unitholder has the right, upon written demand partnership, each partner shall have the right to with a statement of the purpose of such demand and at receive by mail, upon written request to your such OP Unitholder's own expense, to obtain a current partnership and at his cost, a list of the names and list of the name and last known business, residence or addresses of the limited partners and the number of mailing address of the general partner and each other units held by each of them, provided such request is OP Unitholder. for a purpose reasonably related to such limited partner's interest in your partnership.
Management Control Under your partnership's agreement of limited All management powers over the business and affairs of partnership, the general partner has complete and the AIMCO Operating Partnership are vested in AIMCO-GP, exclusive control over the management of your Inc., which is the general partner. No OP Unitholder partnership's business and affairs, and the limited has any right to participate in or exercise control or partners have no right to participate in the management management power over the business and affairs of the or conduct of your partnership's business or affairs AIMCO Operating Partnership. The OP Unitholders have nor any power or authority to act on behalf of your the right to vote on certain matters described under partnership in any respect whatsoever. Subject to "Comparison of Ownership of Your Units and AIMCO OP certain restrictions in your partnership's agreement of Units -- Voting Rights" below. The general partner may limited partnership, the general partner has the right, not be removed by the OP Unitholders with or without power and authority, on behalf of your partnership, and cause. in its name, to exercise all rights, powers and authority of a partner of a partnership without limited In addition to the powers granted a general partner of partners under applicable law. No limited partner a limited partnership under applicable law or that are (except one who may also be a general partner) shall granted to the general partner under any other participate in or have any control over your provision of the AIMCO Operating Partnership Agreement, partnership's business or shall have any authority to the general partner, subject to the other provisions of act for or bind your partnership. 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
S-59 3943 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner shall have no the AIMCO Operating Partnership Agreement, the general liability to your partnership or the limited partners partner is not liable to the AIMCO Operating for any loss suffered by your partnership that arises Partnership for losses sustained, liabilities incurred out of any action or inaction of the general partners or benefits not derived as a result of errors in if the general partners, in good faith, determined that judgment or mistakes of fact or law of any act or such course of conduct was in the best interests of omission if the general partner acted in good faith. your partnership and such course of conduct did not The AIMCO Operating Partnership Agreement provides for constitute negligence or misconduct of the general indemnification of AIMCO, or any director or officer of partners. In addition, the general partners will be AIMCO (in its capacity as the previous general partner indemnified by your partnership against any losses, of the AIMCO Operating Partnership), the general judgments, liabilities, expenses (including reasonable partner, any officer or director of general partner or fees and expenses of attorneys engaged by the general the AIMCO Operating Partnership and such other persons partners or their affiliates in defense of such act or as the general partner may designate from and against omission and other reasonable costs and expenses of all losses, claims, damages, liabilities, joint or litigation and appeal) and amounts paid in settlement several, expenses (including legal fees), fines, of any claims sustained by them in connection with your settlements and other amounts incurred in connection partnership, provided that such act or omission was not with any actions relating to the operations of the the result of negligence or misconduct on the part of AIMCO Operating Partnership, as set forth in the AIMCO the general partners. All costs and expenses incurred Operating Partnership Agreement. The Delaware Limited in defending any proceeding or other action, including Partnership Act provides that subject to the standards fees and expenses of attorneys engaged by the general and restrictions, if any, set forth in its partnership partner, shall be advanced by your partnership. The agreement, a limited partnership may, and shall have general partners and their affiliates shall not be the power to, indemnify and hold harmless any partner indemnified by your partnership for liabilities imposed or other person from and against any and all claims and by judgment and associated costs arising out of a demands whatsoever. It is the position of the violation of state or federal securities laws. The Securities and Exchange Commission that indemnification general partners and any of its affiliates performing of directors and officers for liabilities arising under services on behalf of your partnership shall be the Securities Act is against public policy and is indemnified by your partnership for settlements related unenforceable pursuant to Section 14 of the Securities expenses of lawsuits alleging securities law Act of 1933. violations, and for expenses incurred in successfully defending such lawsuits, provided that a court of competent jurisdiction either (1) approves the settlement of claims against such person and finds that the indemnification of the settlement and related costs should be made, (2) approve indemnification of litigation costs if a successful adjudication on the merits is made as to such person or (3) dismisses such claims with prejudice as to such person and finds that indemnification should be made. Indemnification shall be made from the assets of your partnership and no limited partner shall be personally liable to any person to be indemnified.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner and appoint a successor general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners owning more than 50% of partner may not be removed as general partner of the the outstanding units. A general partner may resign, AIMCO Operating Partnership by the OP Unitholders with with the consent of a majority of the limited partners, or without cause. Under the AIMCO Operating Partnership if the general partner nominates a substitute general Agreement, the general partner may, in its sole partner whose admission will not terminate the status discretion, prevent a transferee of an OP Unit from of your partnership for federal income tax purposes, or becoming a substituted limited partner pursuant to the the general partner provides an AIMCO Operating
S-60 3944 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP opinion that your partnership's tax status tax will Partnership Agreement. The general partner may exercise continue without the admission of such substitute this right of approval to deter, delay or hamper general partner. No person shall be admitted as a attempts by persons to acquire a controlling interest substitute general partner unless: (1) such person in the AIMCO Operating Partnership. Additionally, the agrees to become a substitute general partner, (2) the AIMCO Operating Partnership Agreement contains limited partners holding more than 50% of the restrictions on the ability of OP Unitholders to outstanding units consent to the admission of such transfer their OP Units. See "Description of OP person; and (3) such person executes and acknowledges Units -- Transfers and Withdrawals" in the accompanying such instruments as the general partner deems necessary Prospectus. or advisable, including a written acceptance and adoption of your partnership's agreement of limited partnership.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representations, duties or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, for the benefit of the Partnership Agreement require the consent of the limited partners; (2) cures any ambiguity, corrects or holders of a majority of the outstanding Common OP supplements any provision which may be inconsistent Units, excluding AIMCO and certain other limited with any other provision, or makes any other provisions exclusions (a "Majority in Interest"). Amendments to with respect to matters or questions arising under your the AIMCO Operating Partnership Agreement may be partnership's agreement of limited partnership which proposed by the general partner or by holders of a will not be inconsistent with the provisions of your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership; or (3) general partner will submit any proposed amendment to deletes or adds any provision required by applicable the OP Unitholders. The general partner will seek the law. No amendment shall be adopted unless such written consent of the OP Unitholders on the proposed adoption: (1) is for the benefit of or not adverse to amendment or will call a meeting to vote thereon. See the interests of the limited partners; (2) subject to "Description of OP Units -- Amendment of the AIMCO certain restrictions, does not affect any distributions Operating Partnership Agreement" in the accompanying under your partnership's agreement of limited Prospectus. partnership; and (3) does not affect the limited liability of the limited partners or the status of your partnership as a partnership for federal income tax purposes. In addition, no amendment may be made that alters the rights of the general partner under your partnership's agreement of limited partnership without the consent of the general partner affected, or converts the interest of a limited partner into a general partnership. Other amendments to your partnership's agreement of limited partnership must be approved by the limited partners owning more than 50% of the outstanding units.
Compensation and Fees The general partner of your partnership does not The general partner does not receive compensation for receive compensation for its services. However, it may its services as general partner of the AIMCO Operating receive reimbursement for expenses incurred in such Partnership. However, the general partner is entitled capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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.
S-61 3945 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, no limited partner shall be liable for the negligence, no OP Unitholder has personal liability for debts, liabilities, contracts or any other obligations the AIMCO Operating Partnership's debts and of your partnership. A limited partner will be liable obligations, and liability of the OP Unitholders for only to make his capital contribution and will not be the AIMCO Operating Partnership's debts and obligations required to lend any funds to your partnership or, is generally limited to the amount of their invest- after his capital contribution is paid, to make any ment in the AIMCO Operating Partnership. However, the further capital contribution to your partnership. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner shall diligently and partnership agreement, Delaware law generally requires faithfully devote such of its time to the business of a general partner of a Delaware limited partnership to your partnership as may be necessary to properly adhere to fiduciary duty standards under which it owes conduct the affairs of your partnership. The general its limited partners the highest duties of good faith, partner has a fiduciary responsibility for the fairness and loyalty and which generally prohibit such safekeeping and use of all funds and assets of your general partner from taking any action or engaging in partnership, whether or not in its immediate possession any transaction as to which it has a conflict of or control and that it shall not employ or permit interest. The AIMCO Operating Partnership Agreement another to employ such funds or assets in any manner expressly authorizes the general partner to enter into, except for the benefit of your partnership. The general on behalf of the AIMCO Operating Partnership, a right partner also shall not commingle the funds of your of first opportunity arrangement and other conflict partnership with the funds of any other person. The avoidance agreements with various affiliates of the general partner and any of its affiliates and any of AIMCO Operating Partnership and the general partner, on the limited partners may acquire real properties for such terms as the general partner, in its sole and their own account, or engage in the acquisition, absolute discretion, believes are advisable. The AIMCO development, operation or management of real estate on Operating Partnership Agreement expressly limits the behalf of other partnerships, joint ventures, liability of the general partner by providing that the corporations or other business ventures formed by them general partner, and its officers and directors will or in which they may have an interest, including not be liable or accountable in damages to the AIMCO business ventures similar to, related to or in direct Operating Partnership, the limited partners or or indirect competition with any business of your assignees for errors in judgment or mistakes of fact or partnership. Neither your partnership nor any other law or of any act or omission if the general partner or partner shall have any right in or to such other such director or officer acted in good faith. See business venture or income or profits derived "Description of OP Units -- Fiduciary Responsibilities" therefrom. in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity traded partnership", in which case income and
S-62 3946 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO). Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with more than 50% of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may: Units will have the same voting such as certain amendments and (1) dissolve your partnership; (2) rights as holders of the Common OP termination of the AIMCO Operating remove the general partner; (3) Units. See "Description of OP Partnership Agreement and certain amend your partnership's agreement Units" in the accompanying transactions such as the of limited partnership, subject to Prospectus. So long as any institution of bankruptcy certain exceptions; (4) appoint a Preferred OP Units are outstand- proceedings, an assignment for the substitute gen- ing, in addition to any other vote benefit of creditors and certain or con-
S-63 3947 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS eral partner; and (5) approve or sent of partners required by law or transfers by the general partner of disapprove the sale of all or by the AIMCO Operating Partnership its interest in the AIMCO Operating substantially all of the assets of Agreement, the affirmative vote or Partnership or the admission of a your partnership. consent of holders of at least 50% successor general partner. of the outstanding Preferred OP A general partner may cause the Units will be necessary for Under the AIMCO Operating Partner- dissolution of your partnership by effecting any amendment of any of ship Agreement, the general partner being removed from office, the provisions of the Partnership has the power to effect the withdrawing or becoming in- Unit Designation of the Preferred acquisition, sale, transfer, solvent. Your partnership shall not OP Units that materially and exchange or other disposition of be dissolved but shall be continued adversely affects the rights or any assets of the AIMCO Operating by the limited partners if (1) the preferences of the holders of the Partnership (including, but not remaining general partner elects to Preferred OP Units. The creation or limited to, the exercise or grant continue the business within 90 issuance of any class or series of of any conversion, option, days following one of the above partnership units, including, privilege or subscription right or events, and the limited partners without limitation, any partner- any other right available in owning more than 50% of the ship units that may have rights connection with any assets at any outstanding units elect a senior or superior to the Preferred time held by the AIMCO Operating substitute general partner whose OP Units, shall not be deemed to Partnership) or the merger, admission will not terminate the materially adversely affect the consolidation, reorganization or status of your partnership for rights or preferences of the other combination of the AIMCO federal income tax purposes, or (2) holders of Preferred OP Units. With Operating Partnership with or into if there is no remaining general respect to the exercise of the another entity, all without the partner, all of the partners agree above described voting rights, each consent of the OP Unitholders. in writing to continue the busi- Preferred OP Units shall have one ness of your partnership and elect (1) vote per Preferred OP Unit. The general partner may cause the one or more substitute general dissolution of the AIMCO Operating partners. Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operations shall be made within 45 provided, however, that at any time portion as the general partner may days following the end of each and from time to time on or after in its sole and absolute discretion fiscal quarter. The distributions the fifth anniversary of the issue determine, of Available Cash (as payable to the partners are not date of the Preferred OP Units, the defined in the AIMCO Operating fixed in amount and depend upon the AIMCO Operating Partnership may Partnership Agreement) generated by operating results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general the disposition of your lower of (i) % plus the annual partner, the special limited partnership's assets. interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which interests in the AIMCO Operating Partnership on such
S-64 3948 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ranks on a parity with its Class H record date. Holders of any other Cumulative Preferred Stock. Such Preferred OP Units issued in the distributions will be cumulative future may have priority over the from the date of original issue. general partner, the special Holders of Preferred OP Units will limited partner and holders of not be entitled to receive any Common OP Units with respect to distributions in excess of distributions of Available Cash, cumulative distributions on the distributions upon liquidation or Preferred OP Units. No interest, or other distributions. See "Per Share sum of money in lieu of interest, and Per Unit Data" in the shall be payable in respect of any accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may transfer all There is no public market for the There is no public market for the or part of his units to any person Preferred OP Units and the OP Units. The AIMCO Operating Part- if: (1) the transfer of units when Preferred OP Units are not listed nership Agreement restricts the added to all other assignments on any securities exchange. The transferability of the OP Units. taking place in the preceding 12 Preferred OP Units are subject to Until the expiration of one year months, in the opinion of counsel restrictions on transfer as set from the date on which an OP to your partnership, does not forth in the AIMCO Operating Unitholder acquired OP Units, terminate your partnership for Partnership Agreement. subject to certain exceptions, such Federal tax purposes; (2) the OP Unitholder may not transfer all transferee provides a written Pursuant to the AIMCO Operating or any portion of its OP Units to acceptance and adoption of your Partnership Agreement, until the any transferee without the consent partnership's agreement of limited expiration of one year from the of the general partner, which partnership; (3) the transferor and date on which a holder of Preferred consent may be withheld in its sole transferee represent that such OP Units acquired Preferred OP and absolute discretion. After the assignment would not violate any Units, subject to certain expiration of one year, such OP applicable law; (4) the transfer exceptions, such holder of Unitholder has the right to would not result in any person Preferred OP Units may not transfer transfer all or any portion of its owning more than 50% of the all or any portion of its Pre- OP Units to any person, subject to beneficial interests in your ferred OP Units to any transferee the satisfaction of certain partnership; (5) the transferee is without the consent of the general conditions specified in the AIMCO a U.S. citizen; (6) the transfer partner, which consent may be Operating Partnership Agreement, would not terminate the status of withheld in its sole and absolute including the general partner's your partnership for federal income discretion. After the expiration of right of first refusal. See tax purposes; (7) the transfer one year, such holders of Preferred "Description of OP Units -- would not, in the opinion of coun-
S-65 3949 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS sel to your partnership, violate OP Units has the right to transfer Transfers and Withdrawals" in the any state or federal securities all or any portion of its Preferred accompanying Prospectus. laws; and (8) the general partner OP Units to any person, subject to consents to such transfer and such the satisfaction of certain After the first anniversary of consent will not be withheld unless conditions specified in the AIMCO becoming a holder of Common OP such transfer would result in an Operating Partnership Agreement, Units, an OP Unitholder has the adverse change in the tax status of including the general partner's right, subject to the terms and your partnership or would violate right of first refusal. conditions of the AIMCO Operating federal or state securities laws. Partnership Agreement, to require No assignee shall become a After a one-year holding period, a the AIMCO Operating Partnership to substitute limited partner unless holder may redeem Preferred OP redeem all or a portion of the such assignee executes a written Units and receive in exchange Common OP Units held by such party acceptance and adoption of your therefor, at the AIMCO Operating in exchange for a cash amount based partnership's agreement of limited Partnership's option, (i) subject on the value of shares of Class A partnership and pays all reason- to the terms of any Senior Units, Common Stock. See "Description of able expenses connected to such cash in an amount equal to the OP Units -- Redemption Rights" in assignment. Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-66 3950 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 3951 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 3952 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 3953 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 3954 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 3955 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 3956 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 3957 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 3958 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive an annual management fee, but may be reimbursement for expenses incurred in its capacity as general partner. The general partner of your partnership received fees and reimbursements totaling $138,000 in 1996, $216,000 in 1997 and $612,000 for expenses it incurred during the first six months of 1998. The property manager received management fees of $289,000 in 1996, $292,000 in 1997 and $147,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans S-75 3959 may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. YOUR PARTNERSHIP GENERAL U.S. Realty Partners Limited Partnership was organized on January 24, 1986, under the laws of the State of Delaware. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes and two retail complexes: Governor's Park Apartments, a 154-unit complex in Little Rock, Arkansas; Twin Lakes Apartments, a 262-unit complex in Palm Harbor, Florida; The Gallery-Huntsville, a 101,000 square-foot retail complex in Huntsville, Alabama; and The Gallery-Knoxville, a 100,000 square-foot retail complex in Knoxville, Tennessee. The general partner of your partnership is U.S. Realty I Corporation, which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. Insignia Financial Group, Inc., which is a majority-owned subsidiary of AIMCO, serves as manager of the properties owned by your partnership. As of December 31, 1997, there were 1,222,000 units issued and outstanding, which were held of record by 2,033 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2005, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets S-76 3960 conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner shall have no liability to your partnership or the limited partners for any loss suffered by your partnership that arises out of any action or inaction of the general partners if the general partners, in good faith, determined that such course of conduct was in the best interests of your partnership and such course of conduct did not constitute negligence or misconduct of the general partners. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, the general partners will be indemnified by your partnership against any losses, judgments, liabilities, expenses (including reasonable fees and expenses of attorneys engaged by the general partners or their affiliates in defense of such act or omission and other reasonable costs and expenses of litigation and appeal) and amounts paid in settlement of any claims sustained by them in connection with your partnership; provided that such act or omission was not the result of negligence or misconduct on the part of the general partners. All costs and expenses incurred in defending any proceeding or other action, including fees and expenses of attorneys engaged by the general partner, shall be advanced by your partnership. The general partners and their affiliates shall not be indemnified by your partnership for liabilities imposed by judgment and associated costs arising out of a violation of state or federal securities laws. The general partners and any of its affiliates performing services on behalf of your partnership shall be indemnified by your partnership for settlements related expenses of lawsuits alleging securities law violations, and for expenses incurred in successfully defending such lawsuits, provided that a court of competent jurisdiction either (1) approves the settlement of claims against such person and finds that the indemnification of the settlement and related costs should be made, (2) approves indemnification of litigation costs if a successful adjudication on the merits is made as to such person or (3) dismisses such claims with prejudice as to such person and finds that indemnification should be made. Your partnership shall not advance funds to a general partner or an affiliate for legal expenses and other costs incurred as a result of any legal action initiated against the general partner by a limited partner of your partnership. Your partnership may advance funds to a general partner and its affiliates for legal expenses and other costs incurred as a result of any other legal action, subject to the following conditions: (1) the legal action shall relate to the performance of duties or services by a general partner or an affiliate on behalf of your partnership, (2) the legal action shall be initiated by a third party who is not a limited partner of your partnership and (3) the general partner or such affiliate shall undertake to repay the advanced funds to your partnership in cases in which such person would not be entitled to indemnification as described above. Indemnification shall be S-77 3961 made from the assets of your partnership and no limited partner shall be personally liable to any person to be indemnified. Your partnership's agreement of limited partnership will not incur the cost of the portion of any insurance that insures any party against any liability as to which such party is prohibited from being indemnified as described in your partnership's agreement of limited partnership. DISTRIBUTIONS Your partnership has paid no distributions since January 1, 1995. The original cost per unit was $ . BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 6.6% interest in your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received reimbursement of expenses in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $535,760 1995........................................................ 591,333 1996........................................................ 138,000 1997........................................................ 216,000 1998 (through June 30)...................................... 58,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $295,582 1995........................................................ 282,348 1996........................................................ 289,000 1997........................................................ 292,000 1998 (through June 30)...................................... 147,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-78 3962 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of S-79 3963 AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of U.S. Realty Partners Limited Partnership appearing in U.S. Realty Partners Limited Partnership Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 3964 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 3965 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 3966 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 3967 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 3968
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 3969
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 3970
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 3971
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3972 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 3973 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF UNITED INVESTORS GROWTH PROPERTIES IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, your general partner estimated the net asset value of your units to be $120 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 3974 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of United Investors Growth Properties................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43
PAGE ---- Accounting Treatment......................... S-43 CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-67 General...................................... S-67 Ranking...................................... S-67 Distributions................................ S-67 Allocation................................... S-68 Liquidation Preference....................... S-68 Redemption................................... S-69 Voting Rights................................ S-69 Restrictions on Transfer..................... S-69 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-70 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-72 CONFLICTS OF INTEREST.......................... S-75 Conflicts of Interest with Respect to the Offer...................................... S-75 Conflicts of Interest that Currently Exist for Your Partnership....................... S-75 Competition Among Properties................. S-75 Features Discouraging Potential Takeovers.... S-75 Future Exchange Offers....................... S-75
i 3975
PAGE ---- YOUR PARTNERSHIP............................... S-76 General...................................... S-76 Additional Information Concerning Your Partnership................................ S-76 Originally Anticipated Term of the Partnership................................ S-76 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-76 Property Management.......................... S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3976 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in United Investors Growth Properties. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in United Investor Real Estate, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 3977 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 3978 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $10.08 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 3979 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $3.00 per unit to $32.00 per unit during the period January 1, 1998 through September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $120 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 3980 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 3981 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 3982 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 3983 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $120 per unit. However, we do not believe that this valuation represents the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns S-8 3984 and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. S-9 3985 POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. S-10 3986 WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain S-11 3987 pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 11% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 3988 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 3989 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 3990 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 3991 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 3992 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $3.00 to $32.00 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO S-17 3993 Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner was reimbursed $24,000 for expenses incurred during the first 6 months of 1998. The property manager received management fees of $80,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP United Investors Growth Properties was organized on October 24, 1988, under the laws of the State of Missouri. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Terrace Royale Apartments, an 80 unit complex in Bothell, Washington; Cheyenne Woods Apartments, a 160 unit complex in North Las Vegas, Nevada; and Deerfield Apartments, a 136 unit complex in Memphis, Tennessee. Additionally, your partnership's investment portfolio contains Greystone South Plaza Center, a 55,000 square foot retail and medical center in Lexena, Kansas. The general partner of your partnership is United Investors Real Estate, S-18 3994 Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 39,287 units of limited partnership interest issued and outstanding, which were held of record by 1,109 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 3995 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 3996
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 3997 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 3998
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 3999 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 4000 SUMMARY FINANCIAL INFORMATION OF UNITED INVESTORS GROWTH PROPERTIES The summary financial information of United Investors Growth Properties for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for United Investors Growth Properties for the years ended December 31, 1997 and 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. UNITED INVESTORS GROWTH PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, -------------------- --------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT FOR UNIT DATA) OPERATING DATA: Total Revenues.......................................... $ 1,596 $ 1,546 $ 3,145 $ 3,104 $ 3,543 Net Income/(Loss)....................................... $ (101) $ (131) $ (291) $ (268) $ (382) Net income (Loss) per unit.............................. (2.55) (3.31) (8.24) (6.74) (11.61) Distributions per limited partnership unit.............. 10.08 -- -- -- --
JUNE 30, DECEMBER 31, -------------------- --------------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation............ $12,220 $12,571 $12,397 $12,804 $13,280 Total Assets............................................ $13,640 $13,430 $14,147 $13,604 $14,038 Notes Payable........................................... 13,560 12,772 13,669 12,898 13,037 Partners's Capital/(Deficit)............................ (427) 270 74 401 669
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING UNITED INVESTORS PARTNERSHIP GROWTH PROPERTIES ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $10.08 $0.00
S-25 4001 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $3.00 per unit to $32.00 per unit during the period January 1, 1997 through September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $120 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 4002 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 4003 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $10.08 per unit (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 4004 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the property manager, which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately an 11% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 4005 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 4006 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 4007 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 4008 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-33 4009 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 4010 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 4011 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 4012 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 4013 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 4014 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 4015 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 4016 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 227 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately .58% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 4017 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 4018 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 4019 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 4020 received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax S-45 4021 basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 4022 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Terrace Royale Apartments................ $ % $ Cheyenne Woods Apartments................ Greystone South Plaza Center............. Deerfield Apartments..................... ----------- ----- -----------
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 4023 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 4024 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $10.08 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 4025 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 4026 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $3.00 to $32.00 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 851 units (representing approximately 2.17% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. UNITED INVESTORS GROWTH PROPERTIES REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 4.57 $ 32 Second Quarter............................................ -- -- First Quarter............................................. 3.00 10.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ -- -- Third Quarter............................................. -- -- Second Quarter............................................ 29.50 31.03 First Quarter............................................. 26.03 26.03 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 63.00 63.00 Third Quarter............................................. 25.00 25.00 Second Quarter............................................ -- -- First Quarter............................................. 13.00 215.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-51 4027 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with its 1998 First Quarter Report. That estimate of your partnership's net asset value per unit as of December 31, 1997 was $120. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness and estimated transaction costs (calculated at an estimated 3% of estimated value of each property), together with the cash, proceeds from investments, and all other assets that are believed to have liquidation value, after satisfaction of the Net Operating Liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-52 4028 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-53 4029 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-54 4030 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-55 4031 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 4032 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Missouri law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash From Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2018. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been organized to acquire and The purpose of the AIMCO Operating Partnership is to operate for investment income-producing commercial and conduct any business that may be lawfully conducted by multifamily residential properties. Your partnership a limited partnership organized pursuant to the may invest in properties either directly or through Delaware Revised Uniform Limited Partnership Act (as investment in joint ventures and other partnerships. amended from time to time, or any successor to such Subject to restrictions contained in your partner- statute) (the "Delaware Limited Partnership Act"), ship's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-57 4033 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling up to 200,000 units for cash to time to the limited partners and to other persons, and selected persons who fulfill the requirements set forth to admit such other persons as additional limited in your partnership's agreement of limited partnership. partners, on terms and conditions and for such capital The general partner of your partnership has no contributions as may be established by the general authority to permit your partnership to issue units in partner in its sole discretion. The net capital exchange for property. The capital contribution need contribution need not be equal for all OP Unitholders. not be equal for all limited partners and no action or No action or consent by the OP Unitholders is required consent is required in connection with the admission of in connection with the admission of any additional OP any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 The general partner has no authority to enter into The AIMCO Operating Partnership may lend or contribute transactions or agreement with itself or any of its funds or other assets to its subsidiaries or other affiliates for services, or which may significantly persons in which it has an equity investment, and such benefit the general partner or any of its affiliates in persons may borrow funds from the AIMCO Operating their independent capacity, except as otherwise Partnership, on terms and conditions established in the specifically provided in your partnership's agreement sole and absolute discretion of the general partner. To of limited partnership. The general partner has no the extent consistent with the business purpose of the authority to permit or cause the partnership to make AIMCO Operating Partnership and the permitted any loan to the general partner or any of its activities of the general partner, the AIMCO Operating affiliates except as authorized under your Partnership may transfer assets to joint ventures, partnership's agreement of limited partnership. limited liability companies, partnerships, Additionally, the general partner may not permit or corporations, business trusts or other business cause funds of the partnership to be commingled with entities in which it is or thereby becomes a the funds of any other person or to be employed in any participant upon such terms and subject to such manner other than for the exclusive benefit of the conditions consistent with the AIMCO Operating Part- partnership. The general partner may not permit the nership Agreement and applicable law as the general partnership to purchase or lease property in which the partner, in its sole and absolute discretion, believes general partner or any of the affiliates have an to be advisable. Except as expressly permitted by the interest or sell any property to the general partner or AIMCO Operating Partnership Agreement, neither the any of its affiliates. Nothing in the preceding general partner nor any of its affiliates may sell, sentence will prohibit the general partner from transfer or convey any property to the AIMCO Operating purchasing properties in this own name, or that of any Partnership, directly or indirectly, except pursuant to of its affiliates, and temporarily holding title transactions that are determined by the general partner thereto, for the purpose of facilitating the in good faith to be fair and reasonable. acquisition of such properties by the partnership; provided, however, that such properties must be purchased by the partnership for a price not greater than the cost of such properties to the general partner or its affiliate plus the actual costs, net of income derived from the properties during the holding period, incurred by the general partner or its affiliate in holding such property and provided that there is no difference in interest rates of the loan nor any other benefit arising out of such transaction to the general partner or its affiliate apart from the compensation otherwise permitted by your partnership's agreement of limited partnership. The general partner may not grant to itself or any of its affiliates an exclusive right or employment to sell partnership properties. Also, the general partner may not permit itself or any of its affiliates to purchase or lease a property or any portion of a property.
S-58 4034 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to enter into and execute, on behalf of your restrictions on borrowings, and the general partner has partnership, all agreements, contracts, instruments and full power and authority to borrow money on behalf of related documents in connection with the acquisition, the AIMCO Operating Partnership. The AIMCO Operating ownership, financing, and refinancing of properties by Partnership has credit agreements that restrict, among your partnership. The general partner is not authorized other things, its ability to incur indebtedness. See to permit your partnership to subject a property to one "Risk Factors -- Risks of Significant Indebtedness" in or more mortgages, deeds of trust, or other security the accompanying Prospectus. interests so that the total amount of such indebtedness exceeds 80% of the sum of the aggregate purchase price of all properties which have not been refinanced and the aggregate fair market value of all refinanced properties, as determined by the lender on the date of refinancing. Indebtedness may include the principal of any loan together with any interest that may be deferred pursuant to the terms of the loan agreement which exceeds 5% per annum of the principal balance of such indebtedness. The general partner may not permit the partnership to obtain financing or acquire properties subject to existing financing unless such financing, including all-inclusive and wrap-around loan and interest-only loans meet the requirements provided in your partnership's agreement of limited partnership.
Review of Investor Lists Any partner or his or its duly authorized Each OP Unitholder has the right, upon written demand representative has the right to inspect and copy the with a statement of the purpose of such demand and at books and records of your partnership upon reasonable such OP Unitholder's own expense, to obtain a current notice during business hours. Any party or his duly list of the name and last known business, residence or authorized representative has the right to receive by mailing address of the general partner and each other mail, upon written request to the partnership, a copy OP Unitholder. of a list of names and addresses of the limited partners and the number of units owned by each of them. All copying and mailing costs incurred in providing the list will be paid by the limited partner.
Management Control The general partner is solely responsible for the All management powers over the business and affairs of management of your partnership's business and has all the AIMCO Operating Partnership are vested in AIMCO-GP, rights and powers conferred by applicable laws. In Inc., which is the general partner. No OP Unitholder addition to any other rights and powers which it has any right to participate in or exercise control or possesses, but subject to the limitations set forth in management power over the business and affairs of the your partnership's agreement of limited partnership, AIMCO Operating Partnership. The OP Unitholders have the general partner has all specific right and powers the right to vote on certain matters described under required for or appropriate to its management of the "Comparison of Ownership of Your Units and AIMCO OP partnership's business. Subject to the limitations Units -- Voting Rights" below. The general partner may contained in your partnership's agreement of limited not be removed by the OP Unitholders with or without partnership, the general partner, on behalf of your cause. partnership may take any action it deems necessary or advisable in connection with the business of your In addition to the powers granted a general partner of partnership without the consent of the limited a limited partnership under applicable law or that are partners. A limited partner may not take part in or granted to the general partner under any other interfere in any manner with the conduct or control of provision of the AIMCO Operating Partnership Agreement, the business of your partnership and has no right or the general partner, subject to the other provisions of authority to act for or bind the partnership. 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
S-59 4035 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating accountable for damages or otherwise to your Partnership for losses sustained, liabilities incurred partnership or any limited partner for any acts or benefits not derived as a result of errors in performed or any failure to act by any of them if they judgment or mistakes of fact or law of any act or determined, in good faith, that such acts or failure to omission if the general partner acted in good faith. act was in the best interests of your partnership, and The AIMCO Operating Partnership Agreement provides for such course of conduct did not constitute fraud, indemnification of AIMCO, or any director or officer of negligence, misconduct or other breaches of fiduciary AIMCO (in its capacity as the previous general partner duties on the part of such person. The general partner of the AIMCO Operating Partnership), the general and its affiliates are entitled to indemnification by partner, any officer or director of general partner or your partnership against any loss, damage, liability, the AIMCO Operating Partnership and such other persons cost or expense sustained by it or them if such party as the general partner may designate from and against determined, in good faith that the course of conduct all losses, claims, damages, liabilities, joint or which caused the loss or liability was in the best several, expenses (including legal fees), fines, interests of your partnership and such party was acting settlements and other amounts incurred in connection on behalf or performing services for your partnership, with any actions relating to the operations of the provided that such loss, damage, liability, cost or AIMCO Operating Partnership, as set forth in the AIMCO expense was not the result of negligence or misconduct Operating Partnership Agreement. The Delaware Limited by such party. Any such indemnity provided will be Partnership Act provides that subject to the standards paid, from and only to the extent of, partnership and restrictions, if any, set forth in its partnership assets. Notwithstanding any other provision to the agreement, a limited partnership may, and shall have contrary, the general partner, its affiliates and any the power to, indemnify and hold harmless any partner person acting as broker-dealer will be liable and will or other person from and against any and all claims and not be entitled to indemnity for any loss, damage or demands whatsoever. It is the position of the cost resulting from violations of federal or state Securities and Exchange Commission that indemnification securities laws in connection with the units unless of directors and officers for liabilities arising under there is a successful adjudication of the merits of the Securities Act is against public policy and is each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement, upon the vote (by Except in limited circumstances, the general partner written consent or at a meeting) of a has exclusive management power over the business and majority-in-interest of the limited partners, the affairs of the AIMCO Operating Partnership. The general general partner may be removed as general partner of partner may not be removed as general partner of the your partnership. Units held by the general partner or AIMCO Operating Partnership by the OP Unitholders with any of its affiliates will not be entitled to vote on or without cause. Under the AIMCO Operating Partnership the removal of the general partner. The general partner Agreement, the general partner may, in its sole may resign at any time after substantially all of the discretion, prevent a transferee of an OP Unit from limited partners' capital contributions (except for any becoming a substituted limited partner pursuant to the amounts utilized to pay partnership operating expenses, AIMCO Operating Partnership Agreement. The general organization and offering expenses, or amounts set partner may exercise this right of approval to deter, aside for reserves) have been committed to investment delay or hamper attempts by persons to acquire a in properties or returned to the limited partners and controlling interest in the AIMCO Operating Partner- the properties to which such capital contributions have ship. Additionally, the AIMCO Operating Partnership been committed are acquired by your partnership; Agreement contains restrictions on the ability of OP provided, however, that such resignation will not be Unitholders to transfer their OP Units. See effective until a majority-in-interest of the limited "Description of OP Units -- Transfers and Withdrawals" partners accept such resignation, and provided, in the accompanying Prospectus. further, that 60 days prior to the effective date of any such resignation the resigning general partner must nominate as a substitute general partner a willing person that meets the requirements, if necessary, for continued qualification of the partnership as a partnership for federal income tax pur-
S-60 4036 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP poses. Except as provided in your partnership's agreement, a person may be admitted as a general partner only with the consent of the general partner and a majority-in-interest of the limited partners. A limited partner may not substitute a transferee of his units in such limited partner's place without the consent of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment does not the general partner may, without the consent of the OP materially and adversely affect the rights of the Unitholders, amend the AIMCO Operating Partnership limited partners. In addition to any amendments Agreement, amendments to the AIMCO Operating otherwise authorized in your partnership's agreement of Partnership Agreement require the consent of the limited partnership, amendments may be made to your holders of a majority of the outstanding Common OP partnership's agreement from time to time by the Units, excluding AIMCO and certain other limited general partner, without the consent of any of the exclusions (a "Majority in Interest"). Amendments to limited partners, (1) to add to the representations, the AIMCO Operating Partnership Agreement may be duties or obligations of the general partner or proposed by the general partner or by holders of a surrender any right or power granted to the general Majority in Interest. Following such proposal, the partner in your partnership's agreement of limited general partner will submit any proposed amendment to partnership, for the benefit of the limited partners; the OP Unitholders. The general partner will seek the (2) to cure any ambiguity, to correct or supplement any written consent of the OP Unitholders on the proposed provision in your partnership's agreement of limited amendment or will call a meeting to vote thereon. See partnership which may be inconsistent with any other "Description of OP Units -- Amendment of the AIMCO provision; (3) with respect to your partnership's tax Operating Partnership Agreement" in the accompanying status as a partnership and not as an association Prospectus. taxable as a corporation for federal income tax purposes (i) to obtain expeditious consideration by the Internal Revenue Service of a request for a ruling, (ii) to receive an Internal Revenue Service ruling, (iii) to comply with the requirements of temporary or final income tax regulations promulgated by the Treasury Department, (iv) to ensure the continuation of partnership status, provided however, that, in the opinion of counsel to your partnership, such amendment does not adversely affect the rights or interests of any of the limited partners; (4) to eliminate or modify the general partner's obligation to purchase units as set forth in your partnership's agreement of limited partnership, if, in the opinion of counsel to your partnership, the existence or exercise of the limited partners' rights thereunder could cause the partnership to lose its tax status as a partnership and not as an association taxable as a corporation or to be treated as a "publicly traded partnership" as defined in the applicable laws; (5) to conform the allocations of profits or losses (including nontaxable receipts or nondeductible expenditures) or credits to the requirements of the applicable laws; and (6) to delete or add any provision of this agreement required to be so deleted or added by the staff of the Securities and Exchange Commission or other federal agency or by a state agency to be for the benefit or protection of the limited partners; provided, however, that no amendment, except as specified in your partnership's agreement of limited partnership, may be adopted pursuant to this section unless the adoption thereof (i) is for the benefit of or not adverse to the interests of the limited partners; (ii) is consistent with your partnership's agreement of limited partnership; and (does not adversely affect the limited liability of the limited partners or the status of the partnership as a partnership for federal income tax purposes. Amendments to your partnership's agreement of limited partnership may be proposed by the general partner or by limited partners holding 10% or more of the then outstanding units and must be approved by limited partners owning a majority-in-interest in your partnership.
S-61 4037 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Compensation and Fees The general partner of your partnership receives no fee The general partner does not receive compensation for for its services as general partner of your partnership its services as general partner of the AIMCO Operating but may receive reimbursement for expenses incurred in Partnership. However, the general partner is entitled such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner has no obligation to negligence, no OP Unitholder has personal liability for make contributions to the capital of your partnership the AIMCO Operating Partnership's debts and in excess of the amounts contributed under your obligations, and liability of the OP Unitholders for partnership's agreement, and is not responsible for the AIMCO Operating Partnership's debts and obligations obligations or liabilities of the partnership or the is generally limited to the amount of their invest- general partner in excess of the amounts so ment in the AIMCO Operating Partnership. However, the contributed. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner is under a fiduciary duty to Unless otherwise provided for in the relevant conduct the affairs of your partnership in the best partnership agreement, Delaware law generally requires interest of the partnership and the limited partners, a general partner of a Delaware limited partnership to including the safekeeping and use of all partnership adhere to fiduciary duty standards under which it owes funds and assets whether or not in the possession and its limited partners the highest duties of good faith, control of the general partner. The general partner may fairness and loyalty and which generally prohibit such not permit or cause the funds of your partnership to be general partner from taking any action or engaging in commingled with the funds of any other person or to be any transaction as to which it has a conflict of employed in any manner other than for the exclusive interest. The AIMCO Operating Partnership Agreement benefit of your partnership. The general partner may expressly authorizes the general partner to enter into, not be required to manage the partnership as its sole on behalf of the AIMCO Operating Partnership, a right and exclusive function and it may have other business of first opportunity arrangement and other conflict interests and may engage in other activities in avoidance agreements with various affiliates of the addition to those relating to the partnership, AIMCO Operating Partnership and the general partner, on including the rendering of advice or services of any such terms as the general partner, in its sole and kind to other investors and the making or management of absolute discretion, believes are advisable. The AIMCO other investments. Neither the partnership nor any Operating Partnership Agreement expressly limits the partner has the right by virtue of your partnership's liability of the general partner by providing that the agreement of limited partnership or the partnership general partner, and its officers and directors will relationship created in or to such other ventures or not be liable or accountable in damages to the AIMCO activities or to the income or proceeds derived there- Operating Partnership, the limited partners or from. In the event that the partnership, the general assignees for errors in judgment or mistakes of fact or partner or any affiliate, or any entity formed or law or of any act or omission if the general partner or managed by the general partner or any affiliate, is in such director or officer acted in good faith. See the market for properties similar to those to be "Description of OP Units -- Fiduciary Responsibilities" acquired by the partnership, the general partner will in the accompanying Prospectus. review the investment portfolio of each such entity and will decide which entity will acquire a particular property on the basis of such
S-62 4038 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP factors, among others, as cash flow, the effect of the acquisition on diversification of the portfolio of each, the type and location of the property to be acquired, the estimate income tax effects of the purchase on each such entity, the amount of funds available, the length of time such funds have been available for investment, and the policy of each entity relating to leverage. In the event a particular property appears equally appropriate for investment by the partnership and one or more of such entities, the general partner will offer the investment to the entity whose funds have been available for the longest period of time. Notwithstanding the foregoing, in no event may the general partner acquire any property for its own account while the partnership has uninvested funds in an amount sufficient to acquire the property unless the general partner has first determined that the property is not suitable for the partnership. Nothing mentioned above will be deemed to diminish the general partner's overriding fiduciary obligation to the partnership or to act as a waiver of any right or remedy the partnership or other partners may have in the event of a breach of such obligations.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-63 4039 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority-in-interest, the limited the holders of the Preferred OP respect to certain limited matters partners may amend your Units will have the same voting such as certain amendments and partnership's agreement of limited rights as holders of the Common OP termination of the AIMCO Operating partnership, subject to certain Units. See "Description of OP Partnership Agreement and certain exceptions; dissolve your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership except sales made law or by the AIMCO Operating its interest in the AIMCO Operating in the ordinary course of business Partnership Agreement, the Partnership or the admission of a of acquiring and disposing of affirmative vote or consent of successor general partner. properties. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. Your partnership may be of the Partnership Unit Desig- acquisition, sale, transfer, continued by the remaining general nation of the Preferred OP Units exchange or other disposition of partner or, if none, the limited that materially and adversely any assets of the AIMCO Operating partners may agree to continue your affects the rights or preferences Partnership (including, but not partnership by electing a successor of the holders of the Preferred OP limited to, the exercise or grant general partner upon the vote of Units. The creation or issuance of of any conversion, option, holders of a majority-in-interest any class or series of partnership privilege or subscription right or within 90 days after the retirement units, including, without any other right available in of the general partner. limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to con-
S-64 4040 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tinue 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. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and from time to time on or after in its sole and absolute discretion results and net sales or the fifth anniversary of the issue determine, of Available Cash (as refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by partnership's assets. adjust the annual distribution rate the AIMCO Operating Partnership on the Preferred OP Units to the during such quarter to the general lower of (i) % plus the annual partner, the special limited interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to
S-65 4041 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign all or There is no public market for the There is no public market for the any of his units, provided that: Preferred OP Units and the OP Units. The AIMCO Operating Part- (1) if such assignment is of less Preferred OP Units are not listed nership Agreement restricts the than all of the units held by the on any securities exchange. The transferability of the OP Units. limited partner, a limited partner Preferred OP Units are subject to Until the expiration of one year which is an Individual Retirement restrictions on transfer as set from the date on which an OP Account and its assignee must forth in the AIMCO Operating Unitholder acquired OP Units, immediately thereafter hold at Partnership Agreement. subject to certain exceptions, such least four units and any other OP Unitholder may not transfer all limited partner and his assignee Pursuant to the AIMCO Operating or any portion of its OP Units to must immediately thereafter hold at Partnership Agreement, until the any transferee without the consent least eight units; (2) the partner- expiration of one year from the of the general partner, which ship need not recognize for any date on which a holder of Preferred consent may be withheld in its sole purpose any assignment of all or OP Units acquired Preferred OP and absolute discretion. After the any of the units of a limited Units, subject to certain expiration of one year, such OP partner unless there has been filed exceptions, such holder of Unitholder has the right to with your partnership a duly exe- Preferred OP Units may not transfer transfer all or any portion of its cuted and acknowledged counterpart all or any portion of its Pre- OP Units to any person, subject to of the instrument making such ferred OP Units to any transferee the satisfaction of certain assignment signed by both the without the consent of the general conditions specified in the AIMCO transferor and the transferee and partner, which consent may be Operating Partnership Agreement, such instrument evidences the withheld in its sole and absolute including the general partner's written acceptance by the assignee discretion. After the expiration of right of first refusal. See of all the terms and provisions of one year, such holders of Preferred "Description of OP Units -- your partnership's agreement of OP Units has the right to transfer Transfers and Withdrawals" in the limited partnership and represents all or any portion of its Preferred accompanying Prospectus. that such assignment was made in OP Units to any person, subject to accordance with all applicable laws the satisfaction of certain After the first anniversary of and regulations; and (3) any conditions specified in the AIMCO becoming a holder of Common OP assignment will be void and Operating Partnership Agreement, Units, an OP Unitholder has the ineffectual and will not bind the including the general partner's right, subject to the terms and partnership if the general partner right of first refusal. conditions of the AIMCO Operating believes, based on the advice of Partnership Agreement, to require counsel, that the assignment would After a one-year holding period, a the AIMCO Operating Partnership to result in the termination of the holder may redeem Preferred OP redeem all or a portion of the partnership under Federal tax laws Units and receive in exchange Common OP Units held by such party or would jeopardize the status of therefor, at the AIMCO Operating in exchange for a cash amount based the partnership for Federal income Partnership's option, (i) subject on the value of shares of Class A tax purposes. Any person who is an to the terms of any Senior Units, Common Stock. See "Description of assignee of all or any of the units cash in an amount equal to the OP Units -- Redemption Rights" in of a limited partner may become a Liquidation Preference of the the accompanying Prospectus. Upon substituted limited partner in Preferred OP Units tendered for receipt of a notice of redemption, place of his assignor when all of redemption, (ii) a number of shares the AIMCO Operating Partnership the following conditions are of Class I Cumulative Preferred may, in its sole and absolute satisfied: (1) satisfaction of the Stock of AIMCO that pay an discretion but subject to the requirements of your partnership's aggregate amount of dividends yield restrictions on the ownership of agreement of limited partnership; equivalent to the distributions on Class A Common Stock imposed under (2) execution by the assignee for the Preferred OP Units tendered for AIMCO's charter and the transfer an irrevocable power of attorney, redemption and are part of a class restrictions and other limitations satisfaction of the general or series of preferred stock that thereof, elect to cause AIMCO to partner, appointing the general is then listed on the New York acquire some or all of the tendered partner as the assignee's lawful Stock Exchange or another national Common OP Units in exchange for attorneys-in-fact for the purposes securities exchange, or (iii) a Class A Common Stock, based on an of your partnership's agreement of number of shares of Class A Common exchange ratio of one share of limited partnership; (3) payment of Stock of AIMCO that is equal in Class A Common Stock for each Com- a transfer fee to the partnership Value to the Liquidation Preference mon OP Unit, subject to adjustment sufficient to cover all reasonable of the Preferred OP Units tendered as provided in the AIMCO Operating expenses connected with such for redemption. The Preferred OP Partnership Agreement. assignment and substitution (but in Units may not be redeemed at the no event will such fee be in excess option of the AIMCO Operating of $200); and (4) the general Partnership. See "Description of partner consents in writing to the Preferred OP Units -- Redemption." substitution.
S-66 4042 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-67 4043 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-68 4044 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-69 4045 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-70 4046 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-71 4047 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-72 4048 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-73 4049 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-74 4050 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $32,000 in 1996, $42,000 in 1997 and $24,000 for the first 6 months of 1998. The property manager received management fees of $162,000 in 1996, $160,000 in 1997 and $80,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-75 4051 YOUR PARTNERSHIP GENERAL United Investors Growth Properties was organized on October 24, 1998, under the laws of the State of Missouri. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three residential apartment complexes: Terrace Royale Apartments, an 80 unit complex in Bothell, Washington; Cheyenne Woods Apartments, a 160 unit complex in North Las Vegas, Nevada; and Deerfield Apartments, a 136 unit complex in Memphis, Tennessee. Additionally, your partnership's investment portfolio contains Greystone South Plaza Center, a 55,000 square foot retail and medical center in Lexena, Kansas. The general partner of your partnership is United Investors Real Estate, Inc., which is a majority-owned subsidiary of AIMCO. The executive officers and directors of the general partner are the same as those of the AIMCO GP, which are set forth in Appendix B hereto. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 39,287 units issued and outstanding, which were held of record by 1,109 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Reports on Form 8-K, dated September 23, 1998 and October 1, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated June 19, 1990, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that it was intended to hold each property from five to ten years. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2018, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets S-76 4052 conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable, responsible or accountable for damages or otherwise to your partnership or any limited partner for any acts performed or any failure to act by any of them if they determined, in good faith, that such acts or failure to act was in the best interests of your partnership, and such course of conduct did not constitute negligence or misconduct on the part of such person. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any loss, damage, liability, cost or expense sustained by it or them if such party determined, in good faith that the course of conduct which caused the loss or liability was in the best interests of your partnership and such party was acting on behalf or performing services for your partnership, provided that such loss, damage, liability, cost or expense was not the result of fraud, negligence, misconduct or other breaches of fiduciary duty by such party. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. Notwithstanding any other provision to the contrary, the general partner, its affiliates and any person acting as broker-dealer will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. The advancement of partnership funds to the general partner or its affiliates for legal expenses and other cost incurred as a result of any legal action is allowed if: the legal action related to your partnership or to acts or omissions with respect to the performance of duties or services on behalf of your partnership, the legal action is initiated by a third party who is not a limited partner and the indemnified party undertakes to repay any funds advanced pursuant to your partnership's agreement of limited partnership in the cases in which such party would not be entitled to indemnification. Your partnership may not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is prohibited from being indemnified. S-77 4053 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $250.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 0.00 January 1, 1996 - December 31, 1996......................... 0.00 January 1, 1997 - December 31, 1997......................... 0.00 January 1, 1998 - June 30, 1998............................. 10.08
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately an 11% interest in your partnership, including 3,926 units held by us and the interest held by United Investor Real Estate, Inc. as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $20,000 1995........................................................ 30,000 1996........................................................ 32,000 1997........................................................ 42,000 1998 (through June 30)...................................... 24,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- -------- 1994........................................................ $187,351 1995........................................................ 180,000 1996........................................................ 162,000 1997........................................................ 160,000 1998 (through June 30)...................................... 80,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-78 4054 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-79 4055 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of United Investors Growth Properties incorporated by reference in United Investors Growth Properties Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-80 4056 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 4057 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 4058 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 4059 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 4060
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 4061
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 4062
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 4063
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4064 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 4065 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF UNITED INVESTORS GROWTH PROPERTIES II IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, your general partner estimated the net asset value of your units to be $201.00 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in two apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 4066 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of United Investors Growth Properties II............. S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-53 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 4067
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4068 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in United Investors Growth Properties II. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in United Investors Real Estate, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 4069 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 4070 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $54.35 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in two properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 4071 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $54.27 per unit to $89.42 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $201.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 4072 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. However, your partnership's agreement of limited partnership requires that, if you tender less than all of your units, after the tender you continue to hold a minimum of eight units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 4073 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 4074 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 4075 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $201.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $54.27 per unit to $89.42 per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 4076 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 4077 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 4078 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 4079 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 1% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 4080 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 4081 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-14 4082 Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 4083 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 4084 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $54.27 to $89.42 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 4085 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $12,000 for the first six months of 1998. The property manager received management fees of $43,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP United Investors Growth Properties II was organized on March 23, 1990, under the laws of the State of Missouri. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential capital S-18 4086 appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Riverwalk Apartments, a 104-unit complex in Houston, Texas; and Stone Ridge Apartments, a 106-unit complex in Overland Park, Kansas. The general partner of your partnership is United Investors Real Estate, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 32,601 units of limited partnership interest issued and outstanding, which were held of record by 564 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 4087 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 4088
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 4089 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 4090
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 4091 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 4092 SUMMARY FINANCIAL INFORMATION OF UNITED INVESTORS GROWTH PROPERTIES II The summary financial information of United Investors Growth Properties II for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for United Investors Growth Properties II for the years ended December 31, 1997 and 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. UNITED INVESTORS GROWTH PROPERTIES II
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, ---------------- ------------------------ 1998 1997 1997 1996 1995 ------ ------- ------ ------ ------ (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues............................................. $ 876 $ 824 $1,675 $1,615 $1,546 Net Income (Loss).......................................... 25 (10) (29) (143) 72 Net Income (Loss) per limited partnership unit............. 1.21 (0.48) (1.40) (6.87) 2.88 Distributions per limited partnership unit................. 54.35 3.29 6.68 6.63 8.80
JUNE 30, DECEMBER 31, ---------------- ------------------------ 1998 1997 1997 1996 1995 ------ ------- ------ ------ ------ BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation............... $6,474 $ 6,718 $6,594 $6,845 $7,070 Total Assets............................................... 7,230 7,487 8,340 7,559 7,879 Notes Payable.............................................. 5,883 4,939 5,914 4,973 5,033 Partners' Capital.......................................... 1,160 2,358 2,269 2,437 2,718
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING UNITED INVESTORS GROWTH PARTNERSHIP PROPERTIES II ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $54.35 $6.68
S-25 4093 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $54.27 per unit to $89.42 per unit from January 1, 1997 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $201.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 4094 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages two properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 4095 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $54.35 per unit (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 4096 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 4097 Previous Tender Offers We are aware that tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you S-30 4098 were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 4099 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 4100 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. However, your partnership's agreement of limited partnership requires that, if you tender less than all of units, after the tender you continue to hold a minimum of eight units (except for units held by IRAs and Keogh Plans). You may tender fractional units only if you are tendering all of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. S-33 4101 In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 4102 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 4103 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 4104 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 4105 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 4106 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 4107 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 4108 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 40 units in your partnership have been transferred during the twelve months ended December 31, 1997 (representing approximately .19% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 4109 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 4110 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 4111 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 4112 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-45 4113 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 4114 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Riverwalk Apartments....................... $ % $ Stone Ridge Apartments.....................
- - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-47 4115 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 4116 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ , current annualized distributions with respect to the Common OP Units are $2.25, and distributions with respect to your units for the six months ended June 30, 1998 were $54.35 (equivalent to $ on an annualized basis). This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 4117 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 4118 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $54.27 to $89.42 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 568 units (representing less than 2.74% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. UNITED INVESTORS GROWTH PROPERTIES II REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ----------------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT ------------- ------------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $ 54.27 $ 55.25 Second Quarter............................................ -- -- First Quarter............................................. -- -- Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ -- -- Third Quarter............................................. -- -- Second Quarter............................................ -- -- First Quarter............................................. 89.42 89.42 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 67.00 67.00 Third Quarter............................................. 64.00 64.00 Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available Fiscal Year Ended December 31, 1995: Fourth Quarter............................................ Not Available Not Available Third Quarter............................................. Not Available Not Available Second Quarter............................................ Not Available Not Available First Quarter............................................. Not Available Not Available
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general S-51 4119 partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit. That estimate of your partnership's net asset value per unit as of December 31, 1997 was $201.00. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have liquidation value, after provision in full for all of the other known liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." S-52 4120 ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, S-53 4121 number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your S-54 4122 partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. S-55 4123 Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 4124 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Missouri law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash From Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2002. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been organized to acquire and The purpose of the AIMCO Operating Partnership is to operate for investment income-producing commercial and conduct any business that may be lawfully conducted by multifamily residential properties. Your partnership a limited partnership organized pursuant to the may invest in properties either directly or through Delaware Revised Uniform Limited Partnership Act (as investment in joint ventures and other partnerships. amended from time to time, or any successor to such Subject to restrictions contained in your partner- statute) (the "Delaware Limited Partnership Act"), ship's agreement of limited partnership, your provided that such business is to be conducted in a partnership may perform all acts necessary, advisable manner that permits AIMCO to be qualified as a REIT, or convenient to the business of your partnership unless AIMCO ceases to qualify as a REIT. The AIMCO including borrowing money and creating liens. 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.
S-57 4125 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling up to 200,000 units for cash to time to the limited partners and to other persons, and selected persons who fulfill the requirements set forth to admit such other persons as additional limited in your partnership's agreement of limited partnership. partners, on terms and conditions and for such capital The general partner of your partnership has no contributions as may be established by the general authority to permit your partnership to issue units in partner in its sole discretion. The net capital exchange for property. The capital contribution need contribution need not be equal for all OP Unitholders. not be equal for all limited partners and no action or No action or consent by the OP Unitholders is required consent is required in connection with the admission of in connection with the admission of any additional OP any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 The general partner shall have no authority to enter The AIMCO Operating Partnership may lend or contribute into transactions or agreement with itself of any of funds or other assets to its subsidiaries or other its affiliates for services, or which may significantly persons in which it has an equity investment, and such benefit the general partner or any of its affiliates in persons may borrow funds from the AIMCO Operating their independent capacity, except as otherwise specif- Partnership, on terms and conditions established in the ically provided in your partnership's agreement of sole and absolute discretion of the general partner. To limited partnership. The general partner shall have no the extent consistent with the business purpose of the authority to permit or cause the partnership to make AIMCO Operating Partnership and the permitted any loan to the general partner or any of its activities of the general partner, the AIMCO Operating affiliates except under the terms of your partnership's Partnership may transfer assets to joint ventures, agreement of limited partnership. Additionally, the limited liability companies, partnerships, general partner may not permit or cause funds of the corporations, business trusts or other business partnership to be commingled with the funds of any entities in which it is or thereby becomes a other person or to be employed in any manner other than participant upon such terms and subject to such for the exclusive benefit of the partnership. The conditions consistent with the AIMCO Operating Part- general partner may not permit the partnership to nership Agreement and applicable law as the general purchase or lease property in which the general partner partner, in its sole and absolute discretion, believes or any of the affiliates have an interest or sell any to be advisable. Except as expressly permitted by the property to the general partner or any of its AIMCO Operating Partnership Agreement, neither the affiliates. Nothing in the preceding sentence shall general partner nor any of its affiliates may sell, prohibit the general partner from purchasing properties transfer or convey any property to the AIMCO Operating in its own name, or that of any of its affiliates, and Partnership, directly or indirectly, except pursuant to temporarily holding title thereto, for the purpose of transactions that are determined by the general partner facilitating the acquisition of such properties by the in good faith to be fair and reasonable. partnership; provided, however, that such properties shall be purchased by the partnership for a price not greater than the cost of such properties to the general partner or its affiliate plus the actual costs, net of income derived from the properties during the holding period, incurred by the general partner or its affiliate in holding such property and provided that there is no difference in interest rates of the loan nor any other benefit arising out of such transaction to the general partner or its affiliate apart from the compensation otherwise permitted by your partnership's agreement of limited partnership. Notwithstanding the foregoing, in no event may the general partner or any of its affiliates transfer a property to your partnership which the general partner or such affiliate acquired more than 12 months prior to the date of your partnership's Prospectus or sell property to your partnership if the cost of the property exceeds the funds reasonably anticipated to be available to your partnership to purchase the property. In the event that at any time the general partner and its affiliates have purchased and are holding two or more properties on behalf of your partnership and the aggregate cost of such
S-58 4126 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP properties exceeds the partnership funds available, the partnership shall purchase such properties which, as reasonably determined by the general partner, enable the partnership to most efficiently expend its capital and to create a portfolio of geographically diverse properties of different types. The general partner may not grant to itself or any of its affiliates an exclusive right or employment to sell partnership properties. Also, the general partner may not permit itself or any of its affiliates to purchase or lease a property or any portion of a property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to enter into and execute, on behalf of your restrictions on borrowings, and the general partner has partnership, all agreements, contracts, instruments and full power and authority to borrow money on behalf of related documents in connection with the acquisition, the AIMCO Operating Partnership. The AIMCO Operating ownership, financing, and refinancing of properties by Partnership has credit agreements that restrict, among your partnership. The general partner is not authorized other things, its ability to incur indebtedness. See to permit your partnership to subject a property to one "Risk Factors -- Risks of Significant Indebtedness" in or more mortgages, deeds of trust, or other security the accompanying Prospectus. interests so that the total amount of such indebtedness exceeds 80% of the sum of the aggregate purchase price of all properties which have not been refinanced and the aggregate fair market value of all refined properties, as determined by the lender on the date of refinancing. Indebtedness includes the principal of any loan together with any interest that may be deferred pursuant to the terms of the loan agreement which exceeds 5% per annum of the principal balance of such indebtedness. The general partner may not permit the partnership to obtain financing or acquire properties subject to existing financing unless such financing, including all-inclusive and wrap-around loans and interest-only loans meet the requirements provided in your partnership's agreement of limited partnership.
Review of Investor Lists Any partner or his or its duly authorized Each OP Unitholder has the right, upon written demand representative shall have the right to inspect and copy with a statement of the purpose of such demand and at the books and records of your partnership upon such OP Unitholder's own expense, to obtain a current reasonable notice during business hours. Any party or list of the name and last known business, residence or his duly authorized representative shall have the right mailing address of the general partner and each other to receive by mail, upon written request to the OP Unitholder. partnership, a copy of a list of names and addresses of the limited partners and the number of units owned by each of them. All copying and mailing costs incurred in providing the list shall be paid by the limited partner.
Management Control The general partner shall be solely responsible for the All management powers over the business and affairs of management of your partnership's business and shall the AIMCO Operating Partnership are vested in AIMCO-GP, have all rights and powers conferred by applicable Inc., which is the general partner. No OP Unitholder laws. In addition to any other rights and powers which has any right to participate in or exercise control or it possesses, but subject to the limitations set forth management power over the business and affairs of the in your partnership's agreement of limited partnership, AIMCO Operating Partnership. The OP Unitholders have the general partner shall have all specific right and the right to vote on certain matters described under powers required for or appropriate to its management of "Comparison of Ownership of Your Units and AIMCO OP the partnership's business. Subject to the limitations Units -- Voting Rights" below. The general partner may contained in your partnership's agreement of limited not be removed by the OP Unitholders with or without partnership, the general partner, on behalf of your cause. partnership may take any action it deems necessary or advisable in connection with the business of your In addition to the powers granted a general partner of partnership without the consent of the limited a limited partnership under applicable law or that are partners. A limited partner shall take no part in or granted to the general partner under any other interfere in any manner with the conduct or control of provision of the AIMCO Operating Partnership Agreement, the business of your partnership and shall have no the general partner, subject to the other provisions of right or authority to act for or bind the partnership. the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or
S-59 4127 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating accountable for damages or otherwise to your Partnership for losses sustained, liabilities incurred partnership or any limited partner for any acts or benefits not derived as a result of errors in performed or any failure to act by any of them if they judgment or mistakes of fact or law of any act or determined, in good faith, that such acts or failure to omission if the general partner acted in good faith. act was in the best interests of your partnership, and The AIMCO Operating Partnership Agreement provides for such course of conduct did not constitute fraud, indemnification of AIMCO, or any director or officer of negligence, misconduct or other breaches of fiduciary AIMCO (in its capacity as the previous general partner duties on the part of such person. The general partner of the AIMCO Operating Partnership), the general and its affiliates are entitled to indemnification by partner, any officer or director of general partner or your partnership against any loss, damage, liability, the AIMCO Operating Partnership and such other persons cost or expense sustained by it or them if such party as the general partner may designate from and against determined, in good faith that the course of conduct all losses, claims, damages, liabilities, joint or which caused the loss or liability was in the best several, expenses (including legal fees), fines, interests of your partnership and such party was acting settlements and other amounts incurred in connection on behalf or performing services for your partnership, with any actions relating to the operations of the provided that such loss, damage, liability, cost or AIMCO Operating Partnership, as set forth in the AIMCO expense was not the result of negligence or misconduct Operating Partnership Agreement. The Delaware Limited by such party. Any such indemnity provided shall be Partnership Act provides that subject to the standards paid, from and only to the extent of, partnership and restrictions, if any, set forth in its partnership assets. Notwithstanding any other provision to the agreement, a limited partnership may, and shall have contrary, the general partner, its affiliates and any the power to, indemnify and hold harmless any partner person acting as broker-dealer will be liable and will or other person from and against any and all claims and not be entitled to indemnity for any loss, damage or demands whatsoever. It is the position of the cost resulting from violations of federal or state Securities and Exchange Commission that indemnification securities laws in connection with the units unless of directors and officers for liabilities arising under there is a successful adjudication of the merits of the Securities Act is against public policy and is each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement, upon the vote (by Except in limited circumstances, the general partner written consent or at a meeting) of a has exclusive management power over the business and majority-in-interest of the limited partners, the affairs of the AIMCO Operating Partnership. The general general partner may be removed as general partner of partner may not be removed as general partner of the your partnership. Units held by the general partner or AIMCO Operating Partnership by the OP Unitholders with any of its affiliates will not be entitled to vote on or without cause. Under the AIMCO Operating Partnership the removal of the general partner. The general partner Agreement, the general partner may, in its sole may resign at any time after substantially all of the discretion, prevent a transferee of an OP Unit from limited partners' capital contributions (except for any becoming a substituted limited partner pursuant to the amounts utilized to pay partnership operating expenses, AIMCO Operating Partnership Agreement. The general organization and offering expenses, or amounts set partner may exercise this right of approval to deter, aside for reserves) have been committed to investment delay or hamper attempts by persons to acquire a in properties or returned to the limited partners and controlling interest in the AIMCO Operating Partner- the properties to which such
S-60 4128 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP capital contributions have been committed are acquired ship. Additionally, the AIMCO Operating Partnership by your partnership; provided, however, that such Agreement contains restrictions on the ability of OP resignation will not be effective until a Unitholders to transfer their OP Units. See majority-in-interest of the limited partners accept "Description of OP Units -- Transfers and Withdrawals" such resignation, and provided, further, that 60 days in the accompanying Prospectus. prior to the effective date of any such resignation the resigning general partner must nominate as a substitute general partner a willing person that meets the requirements, if necessary, for continued qualification of the partnership as a partnership for federal income tax purposes. Except as provided in your partnership's agreement, a person may be admitted as a general partner only with the consent of the general partner and a majority-in-interest of the limited partners. A limited partner may not substitute a transferee of his units in such limited partner's place without the consent of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment does not the general partner may, without the consent of the OP materially and adversely affect the rights of the Unitholders, amend the AIMCO Operating Partnership limited partners. In addition to any amendments Agreement, amendments to the AIMCO Operating otherwise authorized in your partnership's agreement of Partnership Agreement require the consent of the limited partnership, amendments may be made to your holders of a majority of the outstanding Common OP partnership's agreement from time to time by the Units, excluding AIMCO and certain other limited general partner, without the consent of any of the exclusions (a "Majority in Interest"). Amendments to limited partners, (1) to add to the representations, the AIMCO Operating Partnership Agreement may be duties or obligations of the general partner or proposed by the general partner or by holders of a surrender any right or power granted to the general Majority in Interest. Following such proposal, the partner in your partnership's agreement of limited general partner will submit any proposed amendment to partnership, for the benefit of the limited partners; the OP Unitholders. The general partner will seek the (2) to cure any ambiguity, to correct or supplement any written consent of the OP Unitholders on the proposed provision in your partnership's agreement of limited amendment or will call a meeting to vote thereon. See partnership which may be inconsistent with any other "Description of OP Units -- Amendment of the AIMCO provision; (3) with respect to your partnership's tax Operating Partnership Agreement" in the accompanying status as a partnership and not as an association Prospectus. taxable as a corporation for federal income tax purposes (i) to obtain expeditious consideration by the Internal Revenue Service of a request for a ruling, (ii) to receive an Internal Revenue Service ruling, (iii) to comply with the requirements of temporary or final income tax regulations promulgated by the Treasury Department, (iv) to ensure the continuation of partnership status, provided however, that, in the opinion of counsel to your partnership, such amendment does not adversely affect the rights or interests of any of the limited partners; (4) to eliminate or modify the general partner's obligation to purchase units as set forth in your partnership's agreement of limited partnership, if, in the opinion of counsel to your partnership, the existence or exercise of the limited partners' rights thereunder could cause the partnership to lose its tax status as a partnership and not as an association taxable as a corporation or to be treated as a "publicly traded partnership" as defined in the applicable laws; (5) to conform the allocations of profits or losses (including nontaxable receipts or nondeductible expenditures) or credits to the requirements of the applicable laws; and (6) to delete or add any provision of this agreement required to be so deleted or added by the staff of the Securities and Exchange Commission or other federal agency or by a state agency to be for the benefit or protection of the limited partners; provided, however, that no amendment, except as specified in your partnership's agreement of limited partnership, will be adopted pursuant to this section unless the adoption thereof (i) is for the benefit of or not adverse to the interests of the limited partners; (ii) is consistent with your partnership's agreement of limited partnership; and (iii) does not adversely affect the limited liability of the limited partners or the status of the partnership as a partnership for
S-61 4129 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP federal income tax purposes. Amendments to your partnership's agreement of limited partnership may be proposed by the general partner or by limited partners holding 10% or more of the then outstanding units and must be approved by limited partners owning a majority-in-interest in your partnership.
Compensation and Fees The general partner of your partnership receives no fee The general partner does not receive compensation for for its services as general partner of your partnership its services as general partner of the AIMCO Operating but may receive reimbursement for expenses incurred in Partnership. However, the general partner is entitled such capacity. to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner has no obligation to negligence, no OP Unitholder has personal liability for make contributions to the capital of your partnership the AIMCO Operating Partnership's debts and in excess of the amounts contributed under your obligations, and liability of the OP Unitholders for partnership's agreement, and is not responsible for the AIMCO Operating Partnership's debts and obligations obligations or liabilities of the partnership or the is generally limited to the amount of their invest- general partner in excess of the amounts so ment in the AIMCO Operating Partnership. However, the contributed. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner is under a fiduciary duty to Unless otherwise provided for in the relevant conduct the affairs of your partnership in the best partnership agreement, Delaware law generally requires interest of the partnership and the limited partners, a general partner of a Delaware limited partnership to including the safekeeping and use of all partnership adhere to fiduciary duty standards under which it owes funds and assets whether or not in the possession and its limited partners the highest duties of good faith, control of the general partner. The general partner may fairness and loyalty and which generally prohibit such not permit or cause the funds of your partnership to be general partner from taking any action or engaging in commingled with the funds of any other person or to be any transaction as to which it has a conflict of employed in any manner other than for the exclusive interest. The AIMCO Operating Partnership Agreement benefit of your partnership. The general partner is not expressly authorizes the general partner to enter into, required to manage the partnership as its sole and on behalf of the AIMCO Operating Partnership, a right exclusive function and it may have other business of first opportunity arrangement and other conflict interests and may engage in other activities in avoidance agreements with various affiliates of the addition to those relating to the partnership, AIMCO Operating Partnership and the general partner, on including the rendering of advice or services of any such terms as the general partner, in its sole and kind to other investors and the making or management of absolute discretion, believes are advisable. The AIMCO other investments. Neither the partnership nor any Operating Partnership Agreement expressly limits the partner has the right by virtue of your partnership's liability of the general partner by providing that the agreement of limited partnership or the partnership general partner, and its officers and directors will relationship created in or to such other ventures or not be liable or accountable in damages to the AIMCO activities or to the income or proceeds derived Operating Partnership, the limited partners or therefrom. In the event that the partnership, the assignees for errors in judgment or mistakes of fact or general partner or any affiliate, or any entity formed law or of any act or omission if or managed by the general partner or any
S-62 4130 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP affiliate, is in the market for properties similar to the general partner or such director or officer acted those to be acquired by the partnership, the general in good faith. See "Description of OP partner will review the investment portfolio of each Units -- Fiduciary Responsibilities" in the such entity and will decide which entity will acquire a accompanying Prospectus. particular property on the basis of such factors, among others, as cash flow, the effect of the acquisition on diversification of the portfolio of each, the type and location of the property to be acquired, the estimate income tax effects of the purchase on each such entity, the amount of funds available, the length of time such funds have been available for investment, and the policy of each entity relating to leverage. In the event a particular property appears equally appropriate for investment by the partnership and one or more of such entities, the general partner will offer the investment to the entity whose funds have been available for the longest period of time. Notwithstanding the foregoing, in no event may the general partner acquire any property for its own account while the partnership has uninvested funds in an amount sufficient to acquire the property unless the general partner has first determined that the property is not suitable for the partnership. Nothing mentioned above will be deemed to diminish the general partner's overriding fiduciary obligation to the partnership or to act as a waiver of any right or remedy the partnership or other partners may have in the event of a breach of such obligations.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-63 4131 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority interest, the limited the holders of the Preferred OP respect to certain limited matters partners may amend your Units will have the same voting such as certain amendments and partnership's agreement of limited rights as holders of the Common OP termination of the AIMCO Operating partnership, subject to certain Units. See "Description of OP Partnership Agreement and certain exceptions; dissolve your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership except sales made law or by the AIMCO Operating its interest in the AIMCO Operating in the ordinary course of business Partnership Agreement, the Partnership or the admission of a of acquiring and disposing of affirmative vote or consent of successor general partner. properties. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- be necessary for effecting any ship Agreement, the general partner amendment of any of the provisions has the power to effect the of the Partnership Unit Desig- acquisition, sale, transfer, nation of the Preferred OP Units exchange or other disposition of that materially and adversely any assets of the AIMCO Operating affects the rights or preferences Partnership (including, but not of the holders of the Preferred OP limited to, the exercise or grant Units. The creation or issuance of of any conversion, option, any class or series of partnership privilege or subscription right or units, including, without any other right available in limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Lim-
S-64 4132 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ited Partnership 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 ab- solute discretion, with or without the consent of the OP Unitholders. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and from time to time on or after in its sole and absolute discretion results and net sales or the fifth anniversary of the issue determine, of Available Cash (as refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by partnership's assets. adjust the annual distribution rate the AIMCO Operating Partnership on the Preferred OP Units to the during such quarter to the general lower of (i) % plus the annual partner, the special limited interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regula- the AIMCO Operating
S-65 4133 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Partnership with respect to any tions and (ii) avoid any Federal Junior Units, nor shall any Junior income or excise tax liability of Units be redeemed, purchased or AIMCO. See "Description of OP otherwise acquired for Units -- Distributions" in the consideration, nor shall any other accompanying Prospectus. cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign all or There is no public market for the There is no public market for the any of his units, provided that: Preferred OP Units and the OP Units. The AIMCO Operating Part- (1) if such assignment is of less Preferred OP Units are not listed nership Agreement restricts the than all of the units held by the on any securities exchange. The transferability of the OP Units. limited partner, a limited partner Preferred OP Units are subject to Until the expiration of one year which is an Individual Retirement restrictions on transfer as set from the date on which an OP Account and its assignee must forth in the AIMCO Operating Unitholder acquired OP Units, immediately thereafter hold at Partnership Agreement. subject to certain exceptions, such least four units and any other OP Unitholder may not transfer all limited partner and his assignee Pursuant to the AIMCO Operating or any portion of its OP Units to must immediately thereafter hold at Partnership Agreement, until the any transferee without the consent least eight units; (2) the partner- expiration of one year from the of the general partner, which ship need not recognize for any date on which a holder of Preferred consent may be withheld in its sole purpose any assignment of all or OP Units acquired Preferred OP and absolute discretion. After the any of the units of a limited Units, subject to certain expiration of one year, such OP partner unless there has been filed exceptions, such holder of Unitholder has the right to with your partnership a duly exe- Preferred OP Units may not transfer transfer all or any portion of its cuted and acknowledged counterpart all or any portion of its Pre- OP Units to any person, subject to of the instrument making such ferred OP Units to any transferee the satisfaction of certain assignment signed by both the without the consent of the general conditions specified in the AIMCO transferor and the transferee and partner, which consent may be Operating Partnership Agreement, such instrument evidences the withheld in its sole and absolute including the general partner's written acceptance by the assignee discretion. After the expiration of right of first refusal. See of all the terms and provisions of one year, such holders of Preferred "Description of OP Units -- your partnership's agreement of OP Units has the right to transfer Transfers and Withdrawals" in the limited partnership and represents all or any portion of its Preferred accompanying Prospectus. that such assignment was made in OP Units to any person, subject to accordance with all applicable laws the satisfaction of certain After the first anniversary of and regulations; and (3) any conditions specified in the AIMCO becoming a holder of Common OP assignment will be void and Operating Partnership Agreement, Units, an OP Unitholder has the ineffectual and will not bind the including the general partner's right, subject to the terms and partnership if the general partner right of first refusal. conditions of the AIMCO Operating believes, based on the advice of Partnership Agreement, to require counsel, that the assignment would After a one-year holding period, a the AIMCO Operating Partnership to result in the termination of the holder may redeem Preferred OP redeem all or a portion of the partnership under Federal tax laws Units and receive in exchange Common OP Units held by such party or would jeopardize the status of therefor, at the AIMCO Operating in exchange for a cash amount based the partnership for federal income Partnership's option, (i) subject on the value of shares of Class A tax purposes. Any person who is an to the terms of any Senior Units, Common Stock. See "Description of assignee of all or any of the units cash in an amount equal to the OP Units -- Redemption Rights" in of a limited partner may become a Liquidation Preference of the the accompanying Prospectus. Upon substituted limited partner in Preferred OP Units tendered for receipt of a notice of redemption, place of his assignor when all of redemption, (ii) a number of shares the AIMCO Operating Partnership the following conditions are of Class I Cumulative Preferred may, in its sole and absolute satisfied: (1) satisfaction of the Stock of AIMCO that pay an discretion but subject to the requirements of your partnership's aggregate amount of dividends yield restrictions on the ownership of agreement of limited partnership; equivalent to the distributions on Class A Common Stock imposed under (2) execution by the assignee for the Preferred OP Units tendered for AIMCO's charter and the transfer an irrevocable power of attorney, redemption and are part of a class restrictions and other limitations satisfaction of the general or series of preferred stock that thereof, elect to cause AIMCO to partner, appointing the general is then listed on the New York acquire some or all of the tendered partner as the assignee's lawful Stock Exchange or another national Common OP Units in exchange for attorneys-in-fact for the purposes securities exchange, or (iii) a Class A Common Stock, based on an of your partnership's agreement of number of shares of Class A Common exchange ratio of one share of limited partnership; (3) payment of Stock of AIMCO that is equal in Class A Common Stock for each Com- a transfer fee to the partnership Value to the Liquidation Preference mon OP Unit, subject to adjustment sufficient to cover all reasonable of the Preferred OP Units tendered as provided in the AIMCO Operating expenses connected with such for redemption. The Preferred OP Partnership Agreement. assignment and substitution (but in Units may not be redeemed no event will such fee be in excess of $200); and (4) the general partner
S-66 4134 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS consents in writing to the at the option of the AIMCO substitution. There shall be no Operating Partnership. See other restrictions on the transfer "Description of Preferred OP of units except as provided above Units -- Redemption." or by any applicable securities laws.
S-67 4135 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 4136 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 4137 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 4138 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 4139 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 4140 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 4141 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 4142 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 4143 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $38,000 in 1996, $40,000 in 1997, and $12,000 for the first six months of 1998. The property manager received management fees of $79,000 in 1996, $83,000 in 1997 and $43,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 4144 YOUR PARTNERSHIP GENERAL United Investors Growth Properties II was organized on March 23, 1990, under the laws of the State of Missouri. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following two residential apartment complexes: Riverwalk Apartments, a 104-unit complex in Houston, Texas; and Stone Ridge Apartments, a 106-unit complex in Overland Park, Kansas. The general partner of your partnership is United Investors Real Estate, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 32,601 units of limited partnership interest issued and outstanding, which were held of record by 564 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP According to the prospectus dated June 18, 1990, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that it was anticipated that properties would be held for five to ten years. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2002, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each S-77 4145 asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable, responsible or accountable for damages or otherwise to your partnership or any limited partner for any acts performed or any failure to act by any of them if they determined, in good faith, that such acts or failure to act was in the best interests of your partnership, and such course of conduct did not constitute negligence or misconduct on the part of such person. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any loss, damage, liability, cost or expense sustained by it or them if such party determined, in good faith that the course of conduct which caused the loss or liability was in the best interests of your partnership and such party was acting on behalf or performing services for your partnership, provided that such loss, damage, liability, cost or expense was not the result of fraud, negligence, misconduct or other breaches of fiduciary duty by such party. Any such indemnity provided will be paid, from and only to the extent of, partnership assets. Notwithstanding any other provision to the contrary, the general partner, its affiliates and any person acting as broker-dealer will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. The advancement of partnership funds to the general partner or its affiliates for legal expenses and other cost incurred as a result of any legal action is allowed if: the legal action related to your partnership or to acts or omissions with respect to the performance of duties or services on behalf of your partnership, the legal action is initiated by a third party who is not a limited partner and the indemnified party undertakes to repay any funds advanced pursuant to your partnership's agreement of limited partnership in the cases in which such party would not be entitled to indemnification. Your partnership may not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is prohibited from being indemnified. S-78 4146 DISTRIBUTIONS The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $250.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $ 8.80 January 1, 1996 - December 31, 1996......................... 6.63 January 1, 1997 - December 31, 1997......................... 6.68 January 1, 1998 - June 30, 1998............................. 54.35
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 1% interest in your partnership, including the interest held by us as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $20,000 1995........................................................ 30,000 1996........................................................ 38,000 1997........................................................ 40,000 1998 (through June 30)...................................... 12,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------- 1994........................................................ $72,485 1995........................................................ 75,000 1996........................................................ 79,000 1997........................................................ 83,000 1998 (through June 30)...................................... 43,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 4147 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 4148 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of United Investors Growth Properties II incorporated by reference in United Investors Growth Properties II Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 4149 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 4150 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 4151 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 4152 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 4154
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 4155
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 4156
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4157 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 4158 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF UNITED INVESTORS INCOME PROPERTIES IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1997, your general partner estimated the net asset value of your units to be $162 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 4159 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-17 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of United Investors Income Properties................ S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-32 Terms of the Offer; Expiration Date.......... S-32 Acceptance for Payment and Payment for Units...................................... S-32 Procedure for Tendering Units................ S-33 Withdrawal Rights............................ S-36 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-37 Fractional OP Units.......................... S-37 Future Plans of the AIMCO Operating Partnership................................ S-37 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-38 Conditions of the Offer...................... S-38 Effects of the Offer......................... S-40 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-43 Accounting Treatment......................... S-43
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-44 Tax Consequences of Exchanging Units Solely for OP Units............................... S-44 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-44 Tax Consequences of Exchanging Units Solely for Cash................................... S-45 Adjusted Tax Basis........................... S-45 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-46 Passive Activity Losses...................... S-46 Foreign Offerees............................. S-47 VALUATION OF UNITS............................. S-47 FAIRNESS OF THE OFFER.......................... S-48 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-48 Fairness to Unitholders who Tender their Units...................................... S-49 Fairness to Unitholders who do not Tender their Units................................ S-50 Comparison of Consideration to Alternative Consideration.............................. S-50 Allocation of Consideration.................. S-52 STANGER ANALYSIS............................... S-53 Experience of Stanger........................ S-53 Summary of Materials Considered.............. S-53 Summary of Reviews........................... S-54 Conclusions.................................. S-55 Assumptions, Limitations and Qualifications............................. S-55 Compensation and Material Relationships...... S-56 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-57 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76 Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77
i 4160
PAGE ---- Additional Information Concerning Your Partnership................................ S-77 Originally Anticipated Term of the Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-78 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-79 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79
PAGE ---- SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4161 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in United Investors Income Properties. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in United Investors Real Estate, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 4162 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 4163 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $4.99 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 4164 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, your partnership's agreement of limited partnership contains certain restrictions on the resale of your units, and the market for your units may be limited. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following the offer. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $55.00 per unit to $247.00 per unit from January 1, 1996 to September 30, 1998. As of December 31, 1997, your general partner estimated the net asset value of your units to be $162.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. S-4 4165 Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. S-5 4166 Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 4167 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 4168 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's [properties] may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1997, your general partner estimated the net asset value of your units to be $162.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $55.00 per unit to $247.00 per unit over the last two years. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. S-8 4169 FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-9 4170 holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our S-10 4171 investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. S-11 4172 POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a majority ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 2.56% interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. S-12 4173 Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have S-13 4174 the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. S-14 4175 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. S-15 4176 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 4177 FAIRNESS OF THE OFFER Fairness to Unitholders. We have a majority ownership interest in your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $55 to $247 Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. S-17 4178 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive an annual management fee but may receive reimbursement for expenses incurred in its capacity as general partner. The general partner was reimbursed $18,000 for expenses it incurred during the first six months of 1998. The property manager received management fees of $44,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP United Investors Income Properties was organized on July 27, 1988, under the laws of the State of Missouri. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three apartment complexes and two commercial office buildings: Bronson Place Apartments, a 70- unit complex in Mountlake Terrace, Washington; Meadow Wood Apartments, an 85-unit complex in Medford, Oregon; Defoors Crossing Apartments, a 60-unit complex in Atlanta, Georgia; and Peachtree Corners Medical Building, a 12,543 square foot medical office building in Atlanta, Georgia. Your partnership also owns Corinth Square Medical Office Building, a 23,149 square foot medical office building in Prairie Village, Kansas, through its 35% ownership interest in Corinth Square, a joint venture with United Investors Income Properties II, an affiliated partnership in which your general partner is also the sole general partner. The general partner of your partnership is United Investors Real Estate, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties S-18 4179 owned by your partnership. As of September 15, 1998, there were 61,063 units of limited partnership interest issued and outstanding, which were held of record by 1,888 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 4180 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 4181
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 4182 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 4183
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 4184 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 4185 SUMMARY FINANCIAL INFORMATION OF UNITED INVESTORS INCOME PROPERTIES The summary financial information of United Investors Income Properties for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for United Investors Income Properties for the years ended December 31, 1997 and 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. UNITED INVESTORS INCOME PROPERTIES
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- IN THOUSANDS OPERATING DATA: Total Revenues............................................ $ 944 $ 904 $ 1,842 $ 1,736 $ 1,635 Net Income (Loss)......................................... 205 246 472 475 299 Net Income (Loss) per limited partnership unit............ 3.32 4.00 7.65 7.70 4.84 Distributions per limited partnership unit................ 4.99 4.99 10.01 10.01 10.00
JUNE 30, DECEMBER 31, --------------------------- --------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ --------- --------- --------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $ 9,244 $ 9,451 $ 9,368 $ 9,574 $ 9,787 Total Assets.............................................. 10,886 11,058 10,966 11,090 11,241 Notes Payable............................................. -- -- -- -- -- Partners' Capital (Deficit)............................... 10,754 10,940 10,857 11,002 11,145
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING UNITED INVESTORS PARTNERSHIP INCOME PROPERTIES ------------------------- ------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ---------- ------------ Cash distributions per unit outstanding................... $1.125 $1.85 $4.99 $10.01
S-25 4186 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $55.00 per unit to $247.00 per unit over the period from January 1, 1996 through September 30, 1997. As of December 31, 1997, your general partner estimated the net asset value of your units to be $162.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 4187 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a few properties. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce S-27 4188 certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $4.99 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more difficult or impossible. We also own a majority of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as S-28 4189 receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest the property manager, which manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.5% interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. S-29 4190 We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount S-30 4191 from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-31 4192 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-32 4193 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-33 4194 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-34 4195 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-35 4196 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-36 4197 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns a majority of the general partner of your partnership and thereby controls the management of your S-37 4198 partnership. In addition, AIMCO owns a majority of the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations S-38 4199 which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in S-39 4200 lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-40 4201 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Limitations on Resales Your partnership's agreement of limited partnership prohibits transfers of units if a transfer, when considered with all other transfers during the same applicable twelve-month period, would cause a termination of your partnership for Federal or any applicable state income tax purposes. This provision may limit sales of units in the secondary market and in private transactions for the twelve-month period following completion of this offer. The general partner of your partnership has advised the AIMCO Operating Partnership that it will not process any requests for recognition of substitution of limited partners upon a transfer of units during such twelve-month period which the general partner believes may cause a tax termination in contravention of the agreement of limited partnership. The AIMCO Operating Partnership took this restriction into account in determining the maximum number of units for which this offer is made. Based on the general partner's records, approximately 447 units in your partnership have been transferred during the preceding twelve months ended December 31, 1997 (representing approximately 0.73% of the outstanding units). As a result, the AIMCO Operating Partnership does not believe that this restriction will preclude it from acquiring the maximum number of units for which this offer is made. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, S-41 4202 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have S-42 4203 filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the complaint has been filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-43 4204 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-44 4205 received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax S-45 4206 basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-46 4207 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each partnership's property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE - -------- ---------------- -------------- -------------- Bronson Place Apartments................. $ % $ Defoors Crossing Apartments.............. Meadow Woods Apartments.................. Peachtree Corners Medical Building....... Corinth Square Medical Office Building (35% interest).........................
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and S-47 4208 certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has a majority ownership interest in the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-48 4209 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $4.99 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-49 4210 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-50 4211 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $55 to $247 Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. UNITED INVESTORS INCOME PROPERTIES REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $105.00 $155.00 Second Quarter............................................ 107.88 116.00 First Quarter............................................. 55.00 116.00 Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ -- -- Third Quarter............................................. -- -- Second Quarter............................................ 92.50 116.00 First Quarter............................................. 82.12 82.12 Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ 247.00 247.00 Third Quarter............................................. 90.00 106.00 Second Quarter............................................ 83.00 83.00 First Quarter............................................. 90.00 96.00
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant S-51 4212 to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: General Partner's Annual Estimates of Net Asset Value. Your general partner prepared an estimate of your partnership's net asset value per unit in connection with its 1998 first quarter report. That estimate of your partnership's net asset value per unit as of December 31, 1997 was $162. This estimated net asset value is based on a hypothetical sale of the partnership's properties and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness and estimated transaction costs (calculated at an estimated 3% of estimated value of each property), together with the cash, proceeds from investments, and all other assets that are believed to have liquidation value, after satisfaction of net operating liabilities of your partnership. This net asset value does not take into account (i) timing considerations or (ii) costs associated with winding up the partnership. Therefore, the AIMCO Operating Partnership believes that this estimate of net asset value per unit does not necessarily represent either the fair market value of a unit or the amount a limited partner reasonably could expect to receive if the partnership's properties were sold and the partnership was liquidated. For this reason, the AIMCO Operating Partnership considered this net asset value estimate to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." S-52 4213 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for S-53 4214 similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. S-54 4215 CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-55 4216 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-56 4217 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Missouri law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership The termination date of your partnership is December Agreement") or as provided by law. See "Description of 31, 2018. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership is organized to acquire and operate The purpose of the AIMCO Operating Partnership is to for investment income-producing commercial and conduct any business that may be lawfully conducted by multifamily properties. Your partnership may invest in a limited partnership organized pursuant to the properties either directly or through investment in Delaware Revised Uniform Limited Partnership Act (as joint ventures and other partnerships. Subject to amended from time to time, or any successor to such restrictions contained in your partnership's agreement statute) (the "Delaware Limited Partnership Act"), of limited partnership, your partnership may perform provided that such business is to be conducted in a all acts necessary, advisable or convenient to the manner that permits AIMCO to be qualified as a REIT, business of your partnership including borrowing money unless AIMCO ceases to qualify as a REIT. The AIMCO and creating liens. 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.
S-57 4218 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling up to 200,000 units for cash to time to the limited partners and to other persons, and selected persons who fulfill the requirements set forth to admit such other persons as additional limited in your partnership's agreement of limited partner- partners, on terms and conditions and for such capital ship. The general partner of your partnership shall contributions as may be established by the general have no authority to permit your partnership to issue partner in its sole discretion. The net capital units in exchange for property. The capital contribution need not be equal for all OP Unitholders. contribution need not be equal for all limited partners No action or consent by the OP Unitholders is required and no action or consent is required in connection with in connection with the admission of any additional OP the admission of any additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 The general partner shall have no authority to enter The AIMCO Operating Partnership may lend or contribute into transactions or agreement with itself of any of funds or other assets to its subsidiaries or other its affiliates for services, or which may significantly persons in which it has an equity investment, and such benefit the general partner or any of its affiliates in persons may borrow funds from the AIMCO Operating their independent capacity, except as otherwise specif- Partnership, on terms and conditions established in the ically provided in your partnership's agreement of sole and absolute discretion of the general partner. To limited partnership. The general partner shall have no the extent consistent with the business purpose of the authority to permit or cause the partnership to make AIMCO Operating Partnership and the permitted any loan to the general partner or any of its activities of the general partner, the AIMCO Operating affiliates except as authorized under your Partnership may transfer assets to joint ventures, partnership's agreement of limited partnership. limited liability companies, partnerships, Additionally, the general partner may not permit or corporations, business trusts or other business cause funds of the partnership to be commingled with entities in which it is or thereby becomes a the funds of any other person or to be employed in any participant upon such terms and subject to such manner other than for the exclusive benefit of the conditions consistent with the AIMCO Operating Part- partnership. The general partner may not permit the nership Agreement and applicable law as the general partnership to purchase or lease property in which the partner, in its sole and absolute discretion, believes general partner or any of the affiliates have an to be advisable. Except as expressly permitted by the interest or sell any property to the general partner or AIMCO Operating Partnership Agreement, neither the any of its affiliates. Nothing in the preceding general partner nor any of its affiliates may sell, sentence shall prohibit the general partner from transfer or convey any property to the AIMCO Operating purchasing properties in his own name, or that of any Partnership, directly or indirectly, except pursuant to of its affiliates, and temporarily holding title transactions that are determined by the general partner thereto, for the purpose of facilitating the in good faith to be fair and reasonable. acquisition of such properties by the partnership; provided, however, that such properties shall be purchased by the partnership for a price not greater than the cost of such properties to the general partner or its affiliate plus the actual costs, net of income derived from the properties during the holding period, incurred by the general partner or its affiliate in holding such property and provided that there is no difference in interest rates of the loan nor any other benefit arising out of such transaction to the general partner or its affiliate apart from the compensation otherwise permitted by your partnership's agreement of limited partnership. The general partner may not grant to itself or any of its affiliates an exclusive right or employment to sell partnership properties. Also, the general partner may not permit itself or any of its affiliates to purchase or lease a property or any portion of a property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to enter into and execute, on behalf of your restrictions on borrowings, and the general partner has partnership, all agreements, con- full power
S-58 4219 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tracts, instruments and related documents in connection and authority to borrow money on behalf of the AIMCO with the acquisition, ownership, financing, and Operating Partnership. The AIMCO Operating Partnership refinancing of properties by your partnership. The has credit agreements that restrict, among other general partner is not authorized to permit your things, its ability to incur indebtedness. See "Risk partnership to use borrowed funds to acquire a property Factors -- Risks of Significant Indebtedness" in the or to acquire a property subject to, or prior to three accompanying Prospectus. years after the acquisition of the property subject a property to, one or more mortgages, deeds of trust or other security interests. The general partner may not permit the partnership to subject a property to one or more mortgages, deeds of trust or other security interests so that the aggregate amount of indebtedness secured by mortgages, deeds of trust, or other security interests to which such property is subject immediately after such action is greater than 80% of the value of the property as determined by the lender in connection with such financing. The general partner may not permit the partnership to obtain financing or acquire properties subject to existing financing unless such financing, included all-inclusive and warp-around loans and interest-only loans meet the requirements provided in your partnership's agreement of limited partnership.
Review of Investor Lists Any partner or his or its duly authorized Each OP Unitholder has the right, upon written demand representative shall have the right to inspect and copy with a statement of the purpose of such demand and at the books and records of your partnership upon such OP Unitholder's own expense, to obtain a current reasonable notice during business hours. Any party or list of the name and last known business, residence or his duly authorized representative shall have the right mailing address of the general partner and each other to receive by mail, upon written request to the OP Unitholder. partnership, a copy of a list of names and addresses of the limited partners and the number of units owned by each of them. All copying and mailing costs incurred in providing the list shall be paid by the limited partner.
Management Control The general partner shall be solely responsible for the All management powers over the business and affairs of management of your partnership's business and shall the AIMCO Operating Partnership are vested in AIMCO-GP, have all rights and powers conferred by applicable Inc., which is the general partner. No OP Unitholder laws. In addition to any other rights and powers which has any right to participate in or exercise control or it possesses, but subject to the limitations set forth management power over the business and affairs of the in your partnership's agreement of limited partnership, AIMCO Operating Partnership. The OP Unitholders have the general partner shall have all specific right and the right to vote on certain matters described under powers required for or appropriate to its management of "Comparison of Ownership of Your Units and AIMCO OP the partnership's business. Subject to the limitations Units -- Voting Rights" below. The general partner may contained in your partnership's agreement of limited not be removed by the OP Unitholders with or without partnership, the general partner, on behalf of your cause. partnership may take any action it deems necessary or advisable in connection with the business of your In addition to the powers granted a general partner of partnership without the consent of the limited a limited partnership under applicable law or that are partners. A limited partner shall take no part in or granted to the general partner under any other interfere in any manner with the conduct or control of provision of the AIMCO Operating Partnership Agreement, the business of your partnership and shall have no the general partner, subject to the other provisions of right or authority to act for or bind the partnership. 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
S-59 4220 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating accountable for damages or otherwise to your Partnership for losses sustained, liabilities incurred partnership or any limited partner for any acts or benefits not derived as a result of errors in performed or any failure to act by any of them if they judgment or mistakes of fact or law of any act or determined, in good faith, that such acts or failure to omission if the general partner acted in good faith. act was in the best interests of your partnership, and The AIMCO Operating Partnership Agreement provides for such course of conduct did not constitute fraud, indemnification of AIMCO, or any director or officer of negligence, misconduct or other breaches of fiduciary AIMCO (in its capacity as the previous general partner duties on the part of such person. The general partner of the AIMCO Operating Partnership), the general and its affiliates are entitled to indemnification by partner, any officer or director of general partner or your partnership against any loss, damage, liability, the AIMCO Operating Partnership and such other persons cost or expense sustained by it or them if such party as the general partner may designate from and against determined, in good faith that the course of conduct all losses, claims, damages, liabilities, joint or which caused the loss or liability was in the best several, expenses (including legal fees), fines, interests of your partnership and such party was acting settlements and other amounts incurred in connection on behalf or performing services for your partnership, with any actions relating to the operations of the provided that such loss, damage, liability, cost or AIMCO Operating Partnership, as set forth in the AIMCO expense was not the result of negligence or misconduct Operating Partnership Agreement. The Delaware Limited by such party. Any such indemnity provided shall be Partnership Act provides that subject to the standards paid, from and only to the extent of, partnership and restrictions, if any, set forth in its partnership assets. Notwithstanding any other provision to the agreement, a limited partnership may, and shall have contrary, the general partner, its affiliates and any the power to, indemnify and hold harmless any partner person acting as broker-dealer will be liable and will or other person from and against any and all claims and not be entitled to indemnity for any loss, damage or demands whatsoever. It is the position of the cost resulting from violations of federal or state Securities and Exchange Commission that indemnification securities laws in connection with the units unless of directors and officers for liabilities arising under there is a successful adjudication of the merits of the Securities Act is against public policy and is each count involving such securities law violations, unenforceable pursuant to Section 14 of the Securities such claims have been dismissed with prejudice on the Act of 1933. merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations.
Anti-Takeover Provisions Under your partnership's agreement, upon the vote (by Except in limited circumstances, the general partner written consent or at a meeting) of a has exclusive management power over the business and majority-in-interest of the limited partners, the affairs of the AIMCO Operating Partnership. The general general partner may be removed as general partner of partner may not be removed as general partner of the your partnership. Units held by the general partner or AIMCO Operating Partnership by the OP Unitholders with any of its affiliates will not be entitled to vote on or without cause. Under the AIMCO Operating Partnership the removal of the general partner. The general partner Agreement, the general partner may, in its sole may resign at any time after substantially all of the discretion, prevent a transferee of an OP Unit from limited partners' capital contributions (except for any becoming a substituted limited partner pursuant to the amounts utilized to pay partnership operating expenses, AIMCO Operating Partnership Agreement. The general organization and offering expenses, or amounts set partner may exercise this right of approval to deter, aside for reserves) have been committed to investment delay or hamper attempts by persons to acquire a in properties or returned to the limited partners and controlling interest in the AIMCO Operating Partner- the properties to which such capital contributions have ship. Additionally, the AIMCO Operating Partnership been committed are acquired by your partnership; Agreement contains restrictions on the ability of OP provided, however, that such resignation shall not be Unitholders to transfer their OP Units. See effective until a majority-in-interest of the limited "Description of OP Units -- Transfers and Withdrawals" partners accept such resignation, and provided, in the accompanying Prospectus. further, that 60 days prior to the effective date of any such resignation the resigning general partner shall nominate as a substitute general partner a willing person that meets the requirements, if necessary, for continued qualification of the partnership as a partnership for federal income tax purposes. Except as provided in your partnership's agreement, a person may be admitted as a general partner only with the consent of the general partner and a majority-in-interest of the limited
S-60 4221 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners. A limited partner may not substitute a transferee of his units in such limited partner's place without the consent of the general partner.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment does not the general partner may, without the consent of the OP materially and adversely affect the rights of the Unitholders, amend the AIMCO Operating Partnership limited partners. In addition to any amendments Agreement, amendments to the AIMCO Operating otherwise authorized in your partnership's agreement of Partnership Agreement require the consent of the limited partnership, amendments may be made to your holders of a majority of the outstanding Common OP partnership's agreement from time to time by the Units, excluding AIMCO and certain other limited general partner, without the consent of any of the exclusions (a "Majority in Interest"). Amendments to limited partners, (1) to add to the representations, the AIMCO Operating Partnership Agreement may be duties or obligations of the general partner or proposed by the general partner or by holders of a surrender any right or power granted to the general Majority in Interest. Following such proposal, the partner in your partnership's agreement of limited general partner will submit any proposed amendment to partnership, for the benefit of the limited partners; the OP Unitholders. The general partner will seek the (2) to cure any ambiguity, to correct or supplement any written consent of the OP Unitholders on the proposed provision in your partnership's agreement of limited amendment or will call a meeting to vote thereon. See partnership which may be inconsistent with any other "Description of OP Units -- Amendment of the AIMCO provision; (3) with respect to your partnership's tax Operating Partnership Agreement" in the accompanying status as a partnership and not as an association Prospectus. taxable as a corporation for federal income tax purposes (i) to obtain expeditious consideration by the Internal Revenue Service of a request for a ruling, (ii) to receive an Internal Revenue Service ruling, (iii) to comply with the requirements of temporary or final income tax regulations promulgated by the Treasury Department, (iv) to ensure the continuation of partnership status, provided however, that, in the opinion of counsel to your partnership, such amendment does not adversely affect the rights or interests of any of the limited partners; (4) to eliminate or modify the general partner's obligation to purchase units as set forth in your partnership's agreement of limited partnership, if, in the opinion of counsel to your partnership, the existence or exercise of the limited partners' rights thereunder could cause the partnership to lose its tax status as a partnership and not as an association taxable as a corporation or to be treated as a "publicly traded partnership" as defined in the applicable laws; (5) to conform the allocations of profits or losses (including nontaxable receipts or nondeductible expenditures) or credits to the requirements of the applicable laws; and (6) to delete or add any provision of this agreement required to be so deleted or added by the staff of the Securities and Exchange Commission or other federal agency or by a state agency to be for the benefit or protection of the limited partners; provided, however, that no amendment, except as specified in your partnership's agreement of limited partnership, shall be adopted pursuant to this section unless the adoption thereof (i) is for the benefit of or not adverse to the interests of the limited partners; (ii) is consistent with your partnership's agreement of limited partnership; and (does not adversely affect the limited liability of the limited partners or the status of the partnership as a partnership for federal income tax purposes. Amendments to your partnership's agreement of limited partnership may be proposed by the general partner or by limited partners holding 10% or more of the then outstanding units and must be approved by limited partners owning a majority-in-interest in your partnership.
Compensation and Fees Your general partner will receive no fee for its The general partner does not receive compensation for services as general partner of your partnership but may its services as general partner of the AIMCO Operating receive reimbursement for expenses incurred in such Partnership. However, the general partner is entitled capacity. to payments, allocations and
S-61 4222 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Except for fraud, willful misconduct or gross partnership, a limited partner shall have no obligation negligence, no OP Unitholder has personal liability for to make contributions to the capital of your the AIMCO Operating Partnership's debts and partnership in excess of the amounts contributed under obligations, and liability of the OP Unitholders for your partnership's agreement, and shall not be respon- the AIMCO Operating Partnership's debts and obligations sible for obligations or liabilities of the partnership is generally limited to the amount of their invest- or the general partner in excess of the amounts so ment in the AIMCO Operating Partnership. However, the contributed. 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 The general partner shall be under a fiduciary duty to Unless otherwise provided for in the relevant conduct the affairs of your partnership in the best partnership agreement, Delaware law generally requires interest of the partnership and the limited partners, a general partner of a Delaware limited partnership to including the safekeeping and use of all partnership adhere to fiduciary duty standards under which it owes funds and assets whether or not in the possession and its limited partners the highest duties of good faith, control of the general partner. The general partner fairness and loyalty and which generally prohibit such shall not permit or cause the funds of your partnership general partner from taking any action or engaging in to be commingled with the funds of any other person or any transaction as to which it has a conflict of to be employed in any manner other than for the interest. The AIMCO Operating Partnership Agreement exclusive benefit of your partnership. The general expressly authorizes the general partner to enter into, partner shall not be required to manage the partner- on behalf of the AIMCO Operating Partnership, a right ship as its sole and exclusive function and it may have of first opportunity arrangement and other conflict other business interests and may engage in other avoidance agreements with various affiliates of the activities in addition to those relating to the AIMCO Operating Partnership and the general partner, on partnership, including the rendering of advice or such terms as the general partner, in its sole and services of any kind to other investors and the making absolute discretion, believes are advisable. The AIMCO or management of other investments. Neither the Operating Partnership Agreement expressly limits the partnership nor any partner shall have the right by liability of the general partner by providing that the virtue of your partnership's agreement of limited general partner, and its officers and directors will partnership or the partnership relationship created in not be liable or accountable in damages to the AIMCO or to such other ventures or activities or to the Operating Partnership, the limited partners or income or proceeds derived therefrom. In the event that assignees for errors in judgment or mistakes of fact or the partnership, the general partner or any affiliate, law or of any act or omission if the general partner or or any entity formed or managed by the general partner such director or officer acted in good faith. See or any affiliate, is in the market for properties "Description of OP Units -- Fiduciary Responsibilities" similar to those to be acquired by the partnership, the in the accompanying Prospectus. general partner will review the investment portfolio of each such entity and will decide which entity will acquire a particular property on the basis of such factors, among others, as cash flow, the effect of the acquisition on diversification of the portfolio of each, the type and location of the property to be acquired, the estimate income tax effects of the purchase on each such entity, the amount of funds available, the length of time such funds have
S-62 4223 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP been available for investment, and the policy of each entity relating to leverage. In the event a particular property appears equally appropriate for investment by the partnership and one or more of such entities, the general partner will offer the investment to the entity whose funds have been available for the longest period of time. Notwithstanding the foregoing, in no event may the general partner acquire any property for its own account while the partnership has uninvested funds in an amount sufficient to acquire the property unless the general partner has first determined that the property is not suitable for the partnership. Nothing mentioned above shall be deemed to diminish the general partner's overriding fiduciary obligation to the partnership or to act as a waiver of any right or remedy the partnership or other partners may have in the event of a breach of such obligations.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
S-63 4224 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of $ per Preferred OP the partners of the AIMCO Operating Unit, subject to adjustments from Partnership. To the extent the time to time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority-in-interest, the limited the holders of the Preferred OP respect to certain limited matters partners may amend your Units will have the same voting such as certain amendments and partnership's agreement of limited rights as holders of the Common OP termination of the AIMCO Operating partnership, subject to certain Units. See "Description of OP Partnership Agreement and certain exceptions; dissolve your Units" in the accompanying transactions such as the partnership; remove or elect a Prospectus. So long as any institution of bankruptcy general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership except sales made law or by the AIMCO Operating its interest in the AIMCO Operating in the ordinary course of business Partnership Agreement, the Partnership or the admission of a of acquiring and disposing of affirmative vote or consent of successor general partner. properties. holders of at least 50% of the outstanding Preferred OP Units will Under the AIMCO Operating Partner- A general partner may cause the be necessary for effecting any ship Agreement, the general partner dissolution of your partnership by amendment of any of the provisions has the power to effect the retiring. Your partnership may be of the Partnership Unit Desig- acquisition, sale, transfer, continued by the remaining general nation of the Preferred OP Units exchange or other disposition of partner or, if none, the limited that materially and adversely any assets of the AIMCO Operating partners may agree to continue your affects the rights or preferences Partnership (including, but not partnership by electing a successor of the holders of the Preferred OP limited to, the exercise or grant general partner upon the vote of Units. The creation or issuance of of any conversion, option, holders of a majority-in-interest any class or series of partnership privilege or subscription right or within 90 days after the retirement units, including, without any other right available in of the general partner. limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating superior to the Preferred OP Units, Partnership) or the merger, shall not be deemed to materially consolidation, reorganization or adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Lim-
S-64 4225 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ited Partnership 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 ab- solute discretion, with or without the consent of the OP Unitholders. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such partners are not fixed in amount provided, however, that at any time portion as the general partner may and depend upon the operating and from time to time on or after in its sole and absolute discretion results and net sales or the fifth anniversary of the issue determine, of Available Cash (as refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by partnership's assets. adjust the annual distribution rate the AIMCO Operating Partnership on the Preferred OP Units to the during such quarter to the general lower of (i) % plus the annual partner, the special limited interest rate then applicable to partner and the holders of Common U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regula- the AIMCO Operating
S-65 4226 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Partnership with respect to any tions and (ii) avoid any Federal Junior Units, nor shall any Junior income or excise tax liability of Units be redeemed, purchased or AIMCO. See "Description of OP otherwise acquired for Units -- Distributions" in the consideration, nor shall any other accompanying Prospectus. cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may assign all or There is no public market for the There is no public market for the any of his units, provided that: Preferred OP Units and the OP Units. The AIMCO Operating Part- (1) if such assignment is of less Preferred OP Units are not listed nership Agreement restricts the than all of the units held by the on any securities exchange. The transferability of the OP Units. limited partner, a limited partner Preferred OP Units are subject to Until the expiration of one year which is an Individual Retirement restrictions on transfer as set from the date on which an OP Account and its assignee shall forth in the AIMCO Operating Unitholder acquired OP Units, immediately thereafter hold at Partnership Agreement. subject to certain exceptions, such least four units and any other OP Unitholder may not transfer all limited partner and his assignee Pursuant to the AIMCO Operating or any portion of its OP Units to shall immediately thereafter hold Partnership Agreement, until the any transferee without the consent at least eight units; (2) the expiration of one year from the of the general partner, which partnership need not recognize for date on which a holder of Preferred consent may be withheld in its sole any purpose any assignment of all OP Units acquired Preferred OP and absolute discretion. After the or any of the units of a limited Units, subject to certain expiration of one year, such OP partner unless there shall have exceptions, such holder of Unitholder has the right to been filed with the partnership a Preferred OP Units may not transfer transfer all or any portion of its duly executed and acknowledged all or any portion of its Pre- OP Units to any person, subject to counterpart of the instrument ferred OP Units to any transferee the satisfaction of certain making such assignment signed by without the consent of the general conditions specified in the AIMCO both the transferor and the partner, which consent may be Operating Partnership Agreement, transferee and such instrument withheld in its sole and absolute including the general partner's evidences the written acceptance by discretion. After the expiration of right of first refusal. See the assignee of all the terms and one year, such holders of Preferred "Description of OP Units -- provisions of your partnership's OP Units has the right to transfer Transfers and Withdrawals" in the agreement of limited partnership all or any portion of its Preferred accompanying Prospectus. and represents that such assignment OP Units to any person, subject to was made in accordance with all the satisfaction of certain After the first anniversary of applicable laws and regulations; conditions specified in the AIMCO becoming a holder of Common OP and (3) any assignment shall be Operating Partnership Agreement, Units, an OP Unitholder has the void and ineffectual and shall not including the general partner's right, subject to the terms and bind the partnership if the gen- right of first refusal. conditions of the AIMCO Operating eral partner believes, based on the Partnership Agreement, to require advice of counsel, that the After a one-year holding period, a the AIMCO Operating Partnership to assignment would result in the holder may redeem Preferred OP redeem all or a portion of the termination of the partnership Units and receive in exchange Common OP Units held by such party under Federal tax laws or would therefor, at the AIMCO Operating in exchange for a cash amount based jeopardize the status of the Partnership's option, (i) subject on the value of shares of Class A partnership for federal income tax to the terms of any Senior Units, Common Stock. See "Description of purposes. Any limited partner who cash in an amount equal to the OP Units -- Redemption Rights" in shall assign all his units shall Liquidation Preference of the the accompanying Prospectus. Upon cease to be a limited partner of Preferred OP Units tendered for receipt of a notice of redemption, the partnership, except that unless redemption, (ii) a number of shares the AIMCO Operating Partnership and until a substituted limited of Class I Cumulative Preferred may, in its sole and absolute partner is admitted in his stead, Stock of AIMCO that pay an discretion but subject to the such assigning limited partner aggregate amount of dividends yield restrictions on the ownership of shall retain the statutory rights equivalent to the distributions on Class A Common Stock imposed under of an assignor of a limited the Preferred OP Units tendered for AIMCO's charter and the transfer partnership interest under redemption and are part of a class restrictions and other limitations applicable laws. Any person who is or series of preferred stock that thereof, elect to cause AIMCO to an assignee of all or any of the is then listed on the New York acquire some or all of the tendered units of a limited partner shall Stock Exchange or another national Common OP Units in exchange for become a substituted limited securities exchange, or (iii) a Class A Common Stock, based on an partner in place of his assignor number of shares of Class A Common exchange ratio of one share of when all of the following Stock of AIMCO that is equal in Class A Common Stock for each Com- conditions are satisfied: (1) Value to the Liquidation Preference mon OP Unit, subject to adjustment satisfaction of the requirements of of the Preferred OP Units tendered as provided in the AIMCO Operating your partnership's agreement of for redemption. The Preferred OP Partnership Agreement. limited partnership; (2) execution Units may not be redeemed at the by the assignee for an irrevocable option of the AIMCO Operating power of attorney, satisfaction of the general partner, appointing the general partner as the as-
S-66 4227 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS signee's lawful attorneys-in-fact Partnership. See "Description of for the purposes of your Preferred OP Units -- Redemption." partnership's agreement of limited partnership; (3) payment of a transfer fee to the partnership sufficient to cover all reasonable expenses connected with such assignment and substitution (but in no event shall such fee be in excess of $200); and (4) the general partner consents in writing to the substitution. There shall be no other restrictions on the transfer of units except as provided above or by any applicable securities laws.
S-67 4228 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 4229 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 4230 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 4231 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 4232 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 4233 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 4234 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 4235 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 4236 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have a majority ownership interest in both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership does not receive an annual management fee but may receive reimbursement for expenses incurred in its capacity as general partner. The general partner was reimbursed $32,000 in 1996, $36,000 in 1997 and $18,000 for expenses incurred during the first six months of 1998. The property manager received management fees of $82,000 in 1996, $86,000 in 1997 and $44,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 4237 YOUR PARTNERSHIP GENERAL United Investors Income Properties was organized on July 27, 1988, under the laws of the State of Missouri. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following three apartment complexes and two commercial office buildings: Bronson Place Apartments, a 70-unit complex in Mountlake Terrace, Washington; Meadow Wood Apartments, an 85-unit complex in Medford, Oregon; Defoors Crossing Apartments, a 60-unit complex in Atlanta, Georgia; and Peachtree Corners Medical Building, a 12,543 square foot medical office building in Atlanta, Georgia. Your partnership also owns Corinth Square Medical Office Building, a 23,149 square foot medical office building in Prairie Village, Kansas, through its 35% ownership interest in Corinth Square, a joint venture with United Investors Income Properties II, an affiliated partnership in which your general partner is also the sole general partner. The general partner of your partnership is United Investors Real Estate, Inc., which is a majority-owned subsidiary of AIMCO. A majority-owned subsidiary of AIMCO serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 61,063 units of limited partnership interest issued and outstanding, which were held of record by 1,889 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 1, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ORIGINALLY ANTICIPATED TERM OF THE PARTNERSHIP In a prospectus dated May 4, 1998, the general partner (which was then not affiliated with us) anticipated that properties would be held from five to ten years and sales would take in consideration such factors as the amounts, appreciation in value, if any, to be realized, the possible risks of continued ownership and the anticipated advantages to be gained by the partners. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 1998 unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. S-77 4238 GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable, responsible or accountable for damages or otherwise to your partnership or any limited partner for any acts performed or any failure to act by any of them if they determined, in good faith, that such acts or failure to act was in the best interests of your partnership, and such course of conduct did not constitute negligence or misconduct on the part of such person. 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 in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any loss, damage, liability, cost or expense sustained by it or them if such party determined, in good faith that the course of conduct which caused the loss or liability was in the best interests of your partnership and such party was acting on behalf or performing services for your partnership, provided that such loss, damage, liability, cost or expense was not the result of fraud, negligence, misconduct or other breaches of fiduciary duty by such party. Any such indemnity provided shall be paid, from and only to the extent of, partnership assets. Notwithstanding any other provision to the contrary, the general partner, its affiliates and any person acting as broker-dealer will be liable and will not be entitled to indemnity for any loss, damage or cost resulting from violations of federal or state securities laws in connection with the units unless there is a successful adjudication of the merits of each count involving such securities law violations, such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or a court of competent jurisdiction approves a settlement of such claims. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. The advancement of partnership funds to the general partner or its affiliates for legal expenses and other cost incurred as a result of any legal action is allowed if: the legal action related to your partnership or to acts or omissions with respect to the performance of duties or services on behalf of your partnership, the legal action is initiated by a third party who is not a limited partner and the indemnified party undertakes to repay any funds advanced pursuant to your partnership's agreement of limited partnership in the cases in which such party would not be entitled to indemnification. S-78 4239 Your partnership shall not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is prohibited from being indemnified. 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. 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. The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $250.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $10.00 January 1, 1996 - December 31, 1996......................... 10.01 January 1, 1997 - December 31, 1997......................... 10.01 January 1, 1998 - June 30, 1998............................. 4.99
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 2.5% interest in your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $20,000 1995........................................................ 30,000 1996........................................................ 32,000 1997........................................................ 36,000 1998 (through June 30)...................................... 18,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------- 1994........................................................ $87,977 1995........................................................ 78,097 1996........................................................ 82,000 1997........................................................ 86,000 1998 (through June 30)...................................... 44,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. S-79 4240 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. S-80 4241 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of United Investors Income Properties incorporated by reference in United Investors Income Properties Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their period thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-81 4242 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 4243 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 4244 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 4245 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 4249
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4250 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 4251 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT 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 SUPPLEMENT 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 OCTOBER 28, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP IN EXCHANGE FOR YOUR CHOICE OF: OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS; OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR $ IN CASH. GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER. EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY MINIMUM NUMBER OF UNITS BEING TENDERED. WE HAVE RETAINED ROBERT A. STANGER & CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON , FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE. YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. As of December 31, 1996, an affiliate of your general partner estimated the net liquidation value of your units to be $288 per unit. - Your general partner is an affiliate of ours and, therefore, has substantial conflicts of interest with respect to our offer. - If we acquire additional units in your partnership, we will increase our ability to influence voting decisions of your partnership. - An investment in our securities involves real estate investment, financing, management, acquisition and development risks. - We may change our investment, acquisition and financing policies without a vote of our securityholders. - If you acquire our securities, the nature of your investment will change from holding an interest in a few apartment properties to holding an interest in our large portfolio of properties. In the future, the properties owned by your partnership may outperform our portfolio of assets. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. October , 1998 4252 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-7 The AIMCO Operating Partnership.............. S-7 Affiliation with your General Partner........ S-7 The Offer.................................... S-7 Risk Factors................................. S-7 Background and Reasons for the Offer......... S-12 Terms of the Offer........................... S-14 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-16 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-18 Comparison of Your Units and AIMCO OP Units...................................... S-18 Conflicts of Interest........................ S-18 Your Partnership............................. S-18 Source and Amount of Funds and Transactional Expenses................................... S-19 Summary Financial Information of AIMCO Properties, L.P............................ S-20 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-22 Summary Financial Information of Winthrop Growth Investors 1 Limited Partnership..... S-25 Comparative Per Unit Data.................... S-25 THE AIMCO OPERATING PARTNERSHIP................ S-26 RISK FACTORS................................... S-26 Risks to Unitholders Who Tender Their Units in the Offer............................... S-26 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-28 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-29 Background of the Offer...................... S-29 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 THE OFFER...................................... S-33 Terms of the Offer; Expiration Date.......... S-33 Acceptance for Payment and Payment for Units...................................... S-33 Procedure for Tendering Units................ S-34 Withdrawal Rights............................ S-37 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-38 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-39 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-42 Fees and Expenses............................ S-44 Accounting Treatment......................... S-44
PAGE ---- CERTAIN FEDERAL INCOME TAX MATTERS............. S-45 Tax Consequences of Exchanging Units Solely for OP Units............................... S-45 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-45 Tax Consequences of Exchanging Units Solely for Cash................................... S-46 Adjusted Tax Basis........................... S-46 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-47 Passive Activity Losses...................... S-47 Foreign Offerees............................. S-48 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-48 VALUATION OF UNITS............................. S-49 FAIRNESS OF THE OFFER.......................... S-50 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-50 Fairness to Unitholders who Tender their Units...................................... S-51 Fairness to Unitholders who do not Tender their Units................................ S-52 Comparison of Consideration to Alternative Consideration.............................. S-52 Allocation of Consideration.................. S-54 STANGER ANALYSIS............................... S-54 Experience of Stanger........................ S-55 Summary of Materials Considered.............. S-55 Summary of Reviews........................... S-56 Conclusions.................................. S-56 Assumptions, Limitations and Qualifications............................. S-56 Compensation and Material Relationships...... S-58 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-59 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64 DESCRIPTION OF PREFERRED OP UNITS.............. S-68 General...................................... S-68 Ranking...................................... S-68 Distributions................................ S-68 Allocation................................... S-69 Liquidation Preference....................... S-69 Redemption................................... S-70 Voting Rights................................ S-70 Restrictions on Transfer..................... S-70 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-71 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-73 CONFLICTS OF INTEREST.......................... S-76 Conflicts of Interest with Respect to the Offer...................................... S-76 Conflicts of Interest that Currently Exist for Your Partnership....................... S-76 Competition Among Properties................. S-76
i 4253
PAGE ---- Features Discouraging Potential Takeovers.... S-76 Future Exchange Offers....................... S-76 YOUR PARTNERSHIP............................... S-77 General...................................... S-77 Additional Information Concerning Your Partnership................................ S-77 Anticipated Term and Termination of Your Partnership................................ S-77 General Policy Regarding Sales and Refinancings of Partnership Properties..... S-77 Property Management.......................... S-78 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions................................ S-78 Beneficial Ownership of Interests in Your Partnership................................ S-79
PAGE ---- Compensation Paid to the General Partner and its Affiliates............................. S-79 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4254 QUESTIONS AND ANSWERS ABOUT THE OFFER Q: WHAT AM I BEING OFFERED? A: We are offering to acquire your units of limited partnership interest in Winthrop Growth Investors 1 Limited Partnership. For each unit that you tender, you may choose to receive of our Tax-Deferral % Partnership Preferred Units (also referred to as "Preferred OP Units"), of our Tax-Deferral Partnership Common Units (also referred to as "Common OP Units"), or $ in cash (subject, in each case to adjustment for any distributions paid to you during the offer period). If you like, you can choose to keep any or all of your units. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS? A: No. Q: WHO IS AIMCO PROPERTIES, L.P.? A: AIMCO Properties, L.P. is the operating partnership which conducts substantially all of the operations of Apartment Investment and Management Company, a real estate investment trust ("AIMCO"). As of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total debt of $1,314 million and stockholders' equity of $1,394 million. On a pro forma basis, giving effect to our recently completed merger with Insignia Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO had total assets of $3,996 million, total debt of $1,491 million and stockholders' equity of $2,002 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired an indirect interest in and control over Two Winthrop Properties, Inc., the managing general partner of your partnership (the "general partner"), and the company that manages the property owned by your partnership. Q: WHY IS THE OFFER BEING MADE? A: We are in the business of acquiring direct and indirect interests in apartment properties. The offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership. The offer also provides you and other investors in your partnership with an opportunity to liquidate your current investment and to invest in our securities or receive cash, or to retain your units. Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS? A: Tax-Deferral % Preferred OP Units are a class of our Partnership Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any national securities exchange nor quoted on NASDAQ. There is no active trading market for Tax-Deferral % Preferred OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral % Preferred OP Units may redeem his or her units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS? A: There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. S-1 4255 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax- Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS? A: The Tax-Deferral Common OP Units are our Partnership Common Units. Tax-Deferral Common OP Units are not listed on any national securities exchange nor quoted on the NASDAQ System. There is no active trading market for Tax-Deferral Common OP Units and none is likely to develop because they are subject to restrictions on transfer. However, after a one-year holding period, a holder of Tax-Deferral Common OP Units may redeem his or her units for shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or, at our option, an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." On October 20, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $33 7/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Tax-Deferral Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1998 Fourth Quarter (through October 20, 1998)............................... $37 1/8 $30 $ -- $ -- Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON OP UNITS? A: There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or an equivalent amount of cash. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-2 4256 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Tax-Deferral Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in \the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH? A: There are two principal advantages of tendering units for cash: - Immediate liquidity. If you tender your units for cash, you will receive $ per unit. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. - Ease of tax reporting. After this year, you will not receive a Schedule K-1 tax form containing tax information used for preparing your Federal income tax return. This may simplify the preparation of your tax return. Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $4.32 per unit for the six months ended June 30, 1998 (equivalent to $ on an annual basis). We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. We pay quarterly distributions on the Tax-Deferral Common OP Units based on our funds from operations for that quarter. For the six months ended June 30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or $ per year on the number of Tax-Deferral Common OP Units, that you would receive in an exchange for each of your partnership's units. Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER? A: We determined our offer consideration without any arms-length negotiations. Thus, the offer consideration may not necessarily reflect the value of your units if they were sold to someone else or if the assets of your partnership were liquidated and the net proceeds distributed to you and your partners. If you tender your units for cash, you may have to pay taxes. If you tender your units in exchange for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units, the nature of your investment will change from holding an interest in a few properties to holding an interest in an operating business that owns and manages a large portfolio of properties, with risks that do not exist for your partnership. You should review the risk factors in this Prospectus Supplement and in the accompanying Prospectus. Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME? A: You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will generally recognize a taxable gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash, and as a partial tax-free contribution of such units to our operating partnership. S-3 4257 THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS? A: As alternatives to tendering your units, you may retain your units or, subject to the terms of your partnership's agreement of limited partnership, seek a private sale of your units. However, the market for your units may be limited. Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS? A: If you choose to retain your units, your investment will remain unchanged. However, if we acquire additional interests in your partnership, we will increase our ability to influence voting decisions with respect to your partnership. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. Q: WHAT ARE MY UNITS WORTH? A: The general partner of your partnership has received an opinion of an independent firm that our offer consideration is fair. However, your units are not listed on any national securities exchange nor quoted on NASDAQ, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $ per unit to $ per unit from January 1, 1997 to September 30, 1998. As of December 31, 1996, an affiliate of your general partner estimated the net liquidation value of your units to be $288.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED? A: We determined the cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual net operating income. We determined an appropriate capitalization rate using S-4 4258 our best judgment, but our valuation is just an estimate. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of the property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. An actual liquidation may also result in your paying taxes. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by the $100 liquidation preference of the Tax-Deferral % Preferred OP Units. Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE OFFERED IN EXCHANGE FOR MY UNITS? A: We divided the cash offer consideration by $ , which represents the closing price of the AIMCO Class A Common Stock on the NYSE on a recent date prior to our commencement of this offer. Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER CONSIDERATION? A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an analysis of the offer and to render an opinion as to the fairness to you of the offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in evaluating our offer. We believe that the information we provided to Stanger is accurate. Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS? A: Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. Accordingly, your general partner makes no recommendation to you as to whether to tender or refrain from tendering any of your units in the offer. However, your general partner believes that you should make your decision based on a number of factors, including your financial position, your risk profile, your desire for liquidity, other financial opportunities available to you and your tax position. Q: WHAT DO I NEED TO DO NOW? A: First, you should read this Prospectus Supplement and the accompanying Prospectus thoroughly and discuss it with your financial and tax advisors. Second, you should decide if you want to tender any of your units and, if so, whether you prefer to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, cash or a combination. Third, if you do want to tender any of your units, you should fill out the Letter of Transmittal that accompanies these materials and send it to the Information Agent listed on the back cover of this Prospectus Supplement. Q: ARE THERE ANY RESTRICTIONS ON THE UNITS I MAY TENDER? A: You may tender any or all of your units. Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL % PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH? A: You have until , 1998 to send your Letter of Transmittal to the Information Agent. As soon as practicable after the , 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash to which you are entitled. However, we reserve the right to extend, terminate or amend the offer and, under certain circumstances, to delay payment for your units. S-5 4259 Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE INFORMATION AGENT? A: Yes. You can withdraw your Letter of Transmittal or submit a new one, changing the number of units you wish to tender or the form of payment you choose to receive. However, you must do this before the expiration of the offer, and you must follow the instructions provided with the Letter of Transmittal and any instructions of the Information Agent. Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS? A: You should feel free to contact the Information Agent as set forth below: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com S-6 4260 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO". AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns approximately an 89% interest in, the AIMCO Operating Partnership. As of October 1, 1998, our portfolio of owned or managed properties included 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that this made us the largest owner and manager of multifamily apartment properties in the United States. As of October 1, 1998, we: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc., we acquired an indirect interest in and control over the general partner of your partnership and majority ownership company that manages the property owned by your partnership. THE OFFER In exchange for each of your units, we are offering you a choice of: - of our Tax-Deferral % Preferred OP Units; - of our Tax-Deferral Common OP Units; or - $ in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of % of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless we extend the deadline. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-26 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer: NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the S-7 4261 exchange ratios and the cash consideration, without any arms-length negotiations. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration, from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, you might receive more value if you retain your units until your partnership is liquidated. However, you may prefer to receive the offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1996, an affiliate of your general partner estimated the net liquidation value of your units to be $288.00 per unit. However, we do not believe that these valuations represent the current fair market value of your units. OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. If you need or desire liquidity, you may wish to consider the offer. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices could be higher or lower than the offer consideration. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $ per unit to $ per unit from January 1, 1997 to September 30, 1998. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to our offer. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive any future distributions on units that we acquire from you. If you elect to receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for your units, you will be entitled to future distributions from us. TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. See "Certain Federal Income Tax Matters." In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of S-8 4262 all of your units in your partnership, and whether the "passive loss" rules apply to your investments. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are certain tax risks associated with the acquisition of, holding and disposing of OP Units. Although your general partner has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus. FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your units for our OP Units, you will have changed fundamentally the nature of your investment from an interest in a partnership that owns and manages a few properties to an interest in a partnership that invests in and manages a large portfolio of properties. UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many real estate investment trust ("REIT") equity securities, including ours. COMPANY AUTHORITY. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. 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, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors, and entities in which they own interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority or our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of the AIMCO Operating Partnership and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the general partner of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole stockholder. At the same time, as general partner of the AIMCO Operating Partnership, it has fiduciary duties to the AIMCO Operating Partnership's partners. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of OP Units. As a result, holders of OP Units have limited influence S-9 4263 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 our operating partnership. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the 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 OP Units. POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. Also, removal of your general partner or the property manager of your partnership's property may become more difficult or impossible without our consent or approval. GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to complete future acquisitions. Although we seek acquisitions and development activities that are accretive on a per share basis, acquisitions and development activities may fail to perform in accordance with our expectations. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned and/or managed properties from 132 properties with 29,343 units to 2,303 properties with 396,090 units. These acquisitions have included purchases of properties, interests in entities that own or manage properties and corporate mergers. The recent Insignia merger is our largest acquisition so far. We can provide no assurance that we will be able to successfully integrate any acquired businesses or properties. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we are sometimes subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. MOODY'S NEGATIVE OUTLOOK FOR AIMCO. Recently, Moody's Investors Service ("Moody's") revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June 30, 1998, approximately $182 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short-term interest rates. Although S-10 4264 these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS. Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many of our properties are owned by subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control, including local conditions that might adversely affect apartment occupancy or rental rates, increases in operating costs, and changes in governmental regulations and the related costs of compliance. POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with them. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or manage many properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. As a condition to 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. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We manage some properties owned by third parties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based decline. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into employment agreements with our Chairman of the Board and Chief Executive Officer, our President and one of our Executive Vice Presidents, the loss of any of their services could have an adverse effect on our operations. ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. In addition, unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. S-11 4265 POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the Federal laws and interpretations thereof could adversely affect our investors. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). Our charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. If you or anyone else 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. OUR CHARTER AND MARYLAND LAW 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 us by a third party without the consent of our board of directors. Under our charter, our board of directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as our board of directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired an indirect interest in and control in the general partner of your partnership and a majority ownership in the Company that manages the property owned by your partnership. Through our subsidiaries, we currently own, in the aggregate, approximately a 21.056% limited partnership interest in your partnership. One of the reasons we acquired Insignia was that we expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia, including your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On October 20, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner: Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of S-12 4266 your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Another option for liquidation of your investment would be to sell your units in a private transaction. Any such sale could be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Tax-Deferral % Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral % Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Tax-Deferral % Preferred OP Units before any distributions are paid to holders of Tax-Deferral Common OP Units. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Tax-Deferral Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Tax-Deferral Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral Common OP Units. S-13 4267 - Quarterly Distributions. We pay quarterly distributions on the Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis). - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Tax-Deferral Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of the offer, see "Risk Factors." TERMS OF THE OFFER General. We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If you tender units pursuant to the offer, you may chose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of , 1998. Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time, on , 1998, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent (as defined below), either with your units to be tendered or in compliance with the specified procedures for guaranteed delivery of units. If you have units registered in the name of a broker, dealer, commercial bank, trust company, custodian or nominee and you wish to tender any units pursuant to the offer, you are urged to contact such person promptly. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds % of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 199 . Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units or Tax-Deferral % Preferred OP Units, if necessary. S-14 4268 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer (the "Information Agent"). Its telephone number is (888) 349-2005 or (201) 896-1900. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of your partnership's property because your general partner and the property manager of your partnership's property will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial amount of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner, aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of 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 our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and the legal fees and expenses in connection therewith. We will also pay the fees of Stanger for providing the fairness opinions for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $ . Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-15 4269 CERTAIN FEDERAL INCOME TAX MATTERS You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. VALUATION OF UNITS We determined the offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely- accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... % Aggregate gross valuation of your partnership's properties................................................ $ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures and deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to holders of units..................................................... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. ===========
S-16 4270 In order to determine the number of Tax-Deferral % Preferred OP Units we are offering for each of your units, we divided the cash offer consideration by the $100 liquidation preference of each Preferred OP Unit to get per unit. In order to determine the number of Tax-Deferral Common OP Units we are offering for each of your units, we divided the cash offer consideration by $ to get per unit. This price represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. FAIRNESS OF THE OFFER Fairness to Unitholders. We have an indirect interest in and control over your general partner. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner has compared our cash offer consideration to: - prices at which the units have been sold in the illiquid secondary market, where information concerning such transactions is known to the general partner; and - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated. The results of these comparative analyses are summarized as follows: COMPARISON TABLE Cash offer consideration.................................... $ Alternatives: Prices on secondary market................................ $ to $ Estimated liquidation proceeds............................ $
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. S-17 4271 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of 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. For example, the general partner of your partnership may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is affiliated with us and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own a majority of both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received total fees and reimbursements of $31,000 for the first six months of 1998. The property manager received management fees of $180,000 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might be required to pay a higher price for any future exchange offers we may make for units of your partnership. YOUR PARTNERSHIP Winthrop Growth Investors 1 Limited Partnership was organized on June 20, 1998, under the laws of the State of Massachusetts. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in various types of real properties which offer potential S-18 4272 capital appreciation and cash distributions to its limited partners. Your partnership's investment portfolio currently consists of the following four residential apartment complexes: Sunflower Apartments, a 248-unit complex in Dallas, Texas; Meadow Wood Apartments, a 356-unit complex in Jacksonville, Florida; Stratford Place Apartments, a 350-unit complex in Gaithersburg, Maryland; and Stratford Village, a 224-unit complex in Montgomery, Alabama. The general partner of your partnership is Two Winthrop Properties, Inc., and we have an indirect interest in and control over your general partner. A company in which we own an indirect interest and control serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 23,139.00 units of limited partnership interest issued and outstanding, which were held of record by 1,031 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $ will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-19 4273 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995, and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form 10, as amended, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330) Owned property management expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711) Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 62,619 30,779 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 9,562 5,605 13,937 8,367 8,132 3,217 Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation.... (196) (294) (588) (590) (581) -- Other assets, depreciation and amortization................... (3) (161) (453) (218) (168) (150) Owner and seller bonuses......... -- -- -- -- -- -- Amortization of management company goodwill............... -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 3,893 2,507 2,038 1,707 2,002 1,020 Minority interests in service company business............... (1) (2) (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business....... 3,892 2,505 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977) Interest income.................. 11,350 1,341 8,676 523 658 123 Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships................... (516) (565) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)................ (4,681) (379) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)................ 5,609 (86) 4,636 -- -- -- Amortization of goodwill......... (3,394) (474) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702 Gain on disposition of properties..................... 2,526 -- 2,720 44 -- -- Provision for income taxes....... -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt......... -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)........................ 210 107 147 94 56 48 Total owned apartment units (end of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513 Units under management (end of period)........................ 68,248 70,213 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities..................... 5,838 25,035 73,032 38,806 25,911 16,825 Cash flows used in investing activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income.......... $ 5,805 $ 8,056 Property operating expenses...... (2,263) (3,200) Owned property management expenses....................... -- -- Depreciation..................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income......................... 6,533 8,069 Management and other expenses.... (5,823) (6,414) Corporate overhead allocation.... -- -- Other assets, depreciation and amortization................... (146) (204) Owner and seller bonuses......... (204) (468) Amortization of management company goodwill............... -- -- ------- -------- 360 983 Minority interests in service company business............... -- -- ------- -------- Company's shares of income from service company business....... 360 983 ------- -------- General and administrative expenses....................... -- -- Interest income.................. -- -- Interest expense................. (4,214) (3,510) Minority interest in other partnerships................... -- -- Equity in losses of unconsolidated partnerships(c)................ -- -- Equity in earnings of unconsolidated subsidiaries(d)................ -- -- Amortization of goodwill......... -- -- ------- -------- Income from operations........... (1,463) 627 Gain on disposition of properties..................... -- -- Provision for income taxes....... (36) (336) ------- -------- Income (loss) before extraordinary item............. (1,499) 291 Extraordinary item -- early extinguishment of debt......... -- -- ------- -------- Net income (loss)................ $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)........................ 4 4 Total owned apartment units (end of period)..................... 1,711 1,711 Units under management (end of period)........................ 29,343 28,422 Basic earnings per Common OP Unit........................... N/A N/A Diluted earnings per Common OP Unit........................... N/A N/A Distributions paid per Common OP Unit........................... N/A N/A Cash flows provided by operating activities..................... 2,678 2,203 Cash flows used in investing activities....................... (924) (16,352)
S-20 4274
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 ENDED JUNE 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Cash flows provided by (used in) financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800 Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391 Weighted average number of Common OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368 Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315 Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- -- -- -- 107,228 Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) @ Cash flows provided by (used in) financing activities............. $(1,032) $ 14,114 Funds from operations(e)........... N/A N/A Weighted average number of Common OP Units outstanding............. N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation..................... $47,500 $ 46,819 Real estate, net of accumulated depreciation..................... 33,270 33,701 Total assets....................... 39,042 38,914 Total mortgages and notes payable.......................... 40,873 41,893 Redeemable Partnership Units....... -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units............................ -- -- Partners' Capital.................. (9,345) (7,556)
---------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE SIX PERIOD MONTHS FOR THE YEAR ENDED JANUARY 10, ENDED JUNE 30, DECEMBER 31, 1994 ----------------- --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 ------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property............................. (2,526) -- (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 4,727 474 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 1,263 3,584 -- -- -- Amortization of management contracts...................... 3,088 150 1,587 -- -- -- Deferred taxes............................................ 4,291 874 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 9,131 697 6,280 -- -- -- Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114) ------- ------- ------- ------- ------- ------- Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391 ======= ======= ======= ======= ======= =======
S-21 4275 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. --------------------------- FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 206,931 $ 402,202 Property operating expenses............................... (78,825) (169,166) Owned property management expenses........................ (4,880) (10,412) Depreciation.............................................. (45,728) (87,246) ---------- --------- 77,498 135,378 ---------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 19,525 41,676 Management and other expenses............................. (9,660) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (7,223) (21,841) ---------- --------- 2,446 (4,436) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 2,445 (4,446) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (56,823) (105,763) Minority interest......................................... (6,103) (9,662) Equity in losses of unconsolidated partnerships........... (11,726) (46,832) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 14,996 $ (28,666) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.04) $ (0.95) Diluted earnings (loss) per Common OP Unit.................. $ (0.04) $ (0.95) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 89,883 $ 140,072 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (100,338) (171,576) OTHER DATA: Funds from operations(d).................................... $ 126,541 $ 181,095 Weighted average number of Common OP Units outstanding...... 71,946 70,311
S-22 4276
AIMCO PROPERTIES, L.P. ---------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, before accumulated depreciation................ $2,669,776 Real estate, net of accumulated depreciation................ 2,371,881 Total assets................................................ 4,180,507 Total mortgages and notes payable........................... 1,610,711 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,937 Partners' capital........................................... 1,898,443
- --------------- (a) Pro forma cash provided by operating activities represents net income, plus depreciation and amortization less the non-cash portion of AIMCO Properties L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma amounts do not include adjustments for changes in working capital resulting from changes in current assets and current liabilities as there is no historical data available as of both the beginning and end of each period presented. (b) On a pro forma basis, cash used in investing activities represents the minimum annual provision for capital replacements of $300 per owned apartment unit. (c) Pro forma cash used in financing activities represents (i) estimated distributions to be paid based on AIMCO Properties, L.P.'s historical distribution rate of $1.125 per Common OP Unit for the six months ended June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31, 1997, on outstanding Common OP Units, (ii) estimated distributions to be paid based on the rate of $3.5625 per unit for the six months ended June 30, 1998 and $7.125 per unit for the year ended December 31, 1997 on outstanding Class B Partnership Preferred Units, (iii) estimated distributions to be paid based on the rate of $1.125 per unit for the six months ended June 30, 1998 and $2.25 per unit for the year ended December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated distributions to be paid based on the rate of $1.095 per unit for the six months ended June 30, 1998 and $2.19 per unit for the year ended December 31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated distributions to be paid based on the rate of $1.1718 per unit for the six months ended June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on outstanding Class G Partnership Preferred Units, and (vi) estimated distributions to be paid based on the rate of $1.1875 per unit for the six months ended June 30, 1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding Class H Partnership Preferred Units. (d) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a manner consistent with the NAREIT definition, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. S-23 4277 The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997 ------- ---------------- ------------------ (IN THOUSANDS) Net income (loss).................................. $ 14,996 $(28,666) HUD release fee and legal reserve.................. -- 10,202 Real estate depreciation, net of minority interests........................................ 43,391 81,936 Amortization of management contracts............... 5,773 11,546 Amortization of management company goodwill........ 4,466 8,930 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation......................... -- 1,715 Amortization of management company goodwill...... 959 1,918 Amortization of management contracts............. 15,345 29,951 Deferred taxes................................... 1,572 (397) Equity in earnings of other partnerships: Real estate depreciation......................... 60,158 104,177 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $126,541 $181,095 ======== ========
S-24 4278 SUMMARY FINANCIAL INFORMATION OF WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP The summary financial information of Winthrop Growth Investors 1 Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Winthrop Growth Investors 1 Limited Partnership for the years ended December 31, 1997, 1996, and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference herein. WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
WINTHROP GROWTH INVESTORS 1 LP --------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues............................................ $ 3,611 $ 3,551 $ 7,161 $ 6,937 $ 6,754 Net Income/(Loss)......................................... (61) (114) (291) (847) (311) Net Income per limited partnership unit................... (2.37) (4.45) (11.32) (32.93) (12.10) Distributions per limited partnership unit................ 4.32 4.32 8.64 8.64 6.48
JUNE 30, DECEMBER 31, ------------------ ----------------------------- 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $21,462 $22,216 $21,825 $22,613 $23,419 Total Assets.............................................. 26,206 26,856 26,287 27,126 26,483 Notes Payable............................................. 21,208 21,450 21,331 21,563 20,081 Partners' Capital/(Deficit)............................... 4,057 4,495 4,218 4,709 5,756
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING WINTHROP GROWTH INVESTORS 1 PARTNERSHIP LIMITED PARTNERSHIP -------------------------- ---------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 ---------- ------------ ----------- ------------- Cash distributions per unit outstanding............. $1.125 $1.85 $4.32 $8.64
S-25 4279 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. As of October 1, 1998, AIMCO, through its wholly owned subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership (the "Special Limited Partner"), held approximately an 89% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled as of January 1, 1998 by the National Multi Housing Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 396,090 apartment units in 2,303 properties located in 49 states, the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO: - owned or controlled 58,495 units in 209 apartment properties; - held an equity interest in 239,879 units in 1,335 apartment properties; and - managed 97,716 units in 759 apartment properties for third party owners and affiliates. The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. RISK FACTORS RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your partnership's property on any third-party appraisal or valuation. We established the terms of our offer, including the exchange ratios and the cash consideration. Such terms are not the result of arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. Based on information recorded by the general partner of your partnership, we believe that sales prices for your units have ranged from $102.50 per unit to $320.00 per unit from January 1, 1997 to September 30, 1998. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's properties may outperform our larger, more diversified portfolio of assets. Although we cannot predict the future value of your partnership's properties, our offer consideration could be less than the net proceeds that you would realize upon a future liquidation of your partnership. Accordingly, although there can be no assurance, you might receive more consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. However, you may prefer to receive our offer consideration now rather than wait for uncertain future net liquidation proceeds. As of December 31, 1996, an affiliate of your general partner estimated the net liquidation value of your units to be $288.00 per unit. However, we do not believe that this valuation represents the current fair market value of your units. Furthermore, your general partner has no present intention to liquidate your partnership, and your partnership's agreement of limited partnership does not require a sale of your partnership's properties by any particular date. ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making our offer with a view to making a profit. Accordingly, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. S-26 4280 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. These conflicts include the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Your general partner makes no recommendation to you as to whether you should tender your units. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all rights title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, following the purchase of your units, we would be entitled to receive any future distributions from the operations of your partnership to the extent of the units we acquire. Similarly, if you tender your units for OP Units, you will be entitled to future distributions from the operations of the AIMCO Operating Partnership. TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for OP Units will not be a taxable transaction. Your sale of units for cash will be a taxable sale, with the result that you will recognize gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units you transfer to us. Your exchange of units for cash and OP Units will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. In addition, if there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in your units, whether you dispose of all of your S-27 4281 units in your partnership and whether you are no longer subject to the "passive loss" rules with respect to your partnership. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor with specific reference to your own tax situation. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your units for OP Units, you will have changed fundamentally the nature of your investment. Your partnership owns and manages a [few properties]. In contrast, the AIMCO Operating Partnership is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities or our portfolio of properties as compared to the value of your units or your partnership. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been fluctuations in the trading prices for many REIT securities. There may be subsequent changes in public market valuations of real estate assets relative to private market valuations of real estate assets. We cannot predict the price at which the Class I Preferred Stock or the Class A Common Stock will trade following the time at which Preferred OP Units or Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common Stock at the time at which OP Units may be redeemed is also uncertain. COMPANY AUTHORITY. Under our organizational documents, we have the ability to change our investment, acquisition and financing policies without a vote of the limited partners of the AIMCO Operating Partnership or the stockholders of AIMCO. If you tender your units for OP Units, you will have less effective power in influencing our policies than you currently have in influencing the policies of your partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate investment, financing, management, acquisition and development risks, many of which are similar to the risks currently faced by your partnership, as well as additional risks. See "Risk Factors" in the accompanying Prospectus. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER LACK OF TRADING MARKET FOR UNITS. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. If you desire or need liquidity, you may wish to consider our offer. Our offer affords you an opportunity to dispose of your units for cash, an opportunity which might not be available to you in the foreseeable future. However, our offer consideration does not necessarily reflect the price that you would receive in an open market for your units or upon a liquidation of your partnership's assets. Such prices may be higher or lower than our offer consideration. DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $4.32 per unit (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner without our consent may become more S-28 4282 difficult or impossible. We also own an indirect interest and control of the company that manages your partnership's property. In the event that we acquire a substantial number of units pursuant to our offer, removal of the property manager without our consent may become more difficult or impossible. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from the offer, your partnership will terminate for federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions allocable to you if you do not tender all of your units (thereby increasing the taxable income allocable to your units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership restricts you from making any transfer that would cause 50% or more of the total interest in your partnership to be transferred within a 12-month period. If we acquire a significant interest in your partnership, through this offer, you may not be able to transfer your units for the 12-month period after our offer. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed its existing ratings on our preferred stock and senior debt. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership by tendering for OP Units or for cash. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The managing general partner of S-29 4283 your partnership is Two Winthrop Properties, Inc. which is owned by First Winthrop Corporation, which is owned by the AIMCO Operating Partnership and Winthrop Financial Associates. The Bylaws of First Winthrop Corporation gives the AIMCO Operating Partnership effective control of your partnership. In early 1997, an affiliate of the non-managing general partner of your partnership acquired 4,792.34 units (approximately 26.7%) in a tender offer for $275 per unit. In October 1997, Insignia Financial Group, Inc. agreed to buy such units and bought such units for $ per unit in April 1998. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity who manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 21.06% limited partnership interest in your partnership. IPT and AIMCO have entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger Agreement provides that, upon consummation of the IPT Merger, IPT shareholders will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's Class A Common Stock, at AIMCO's option. The transactions contemplated by the IPT Merger Agreement are subject to certain conditions. The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has indicated that it expects to vote all of the IPT Shares owned by it in favor of the IPT Merger. Accordingly, IPT shareholder approval is assured. One of the reasons AIMCO acquired Insignia was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain Insignia Partnerships which would provide a larger asset and capital base and increased diversification. As of October , 1998, the AIMCO Operating Partnership has made offers to of the Insignia Partnerships, including your partnership. Previous Tender Offers LON WGI Associates, L.L.C., which was unaffiliated with Insignia and is not affiliated with AIMCO, commenced a tender offer for $275.00 per unit and purchased 4,792.34 shares in February 6, 1997. See "-- Background of the Offer -- General." We are aware that other tender offers may have been made to acquire units in your partnership in exchange for cash. We are unaware of the amounts offered, terms, tendering parties or number of units involved in these tender offers. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated October 20, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by the general partner of your partnership. Liquidation Benefits of Liquidation. One alternative would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and S-30 4284 liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of the general partner of your partnership, the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage for the property. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Another option for liquidation would be to sell your units in a private transaction. Any such sale likely would be at a very substantial discount from your pro rata share of the fair market value of your partnership's property and might involve significant expense and delay. Continuation of the Partnership Without the Offer Benefits of Continuation. A second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more attractive option than it is currently. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. Your partnership faces maturity or balloon payment dates on its mortgage loans and must either obtain refinancing or sell its property. If your partnership were to continue operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. In addition, continuation of your partnership as a separate entity without our offer would deny you and your partners the benefits of our offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Preferred Quarterly Distributions. We will pay fixed quarterly distributions of $ per unit on the Preferred OP Units before any distributions are paid to holders of Common OP Units. However, one S-31 4285 class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred Units rank equal to six other outstanding classes of Partnership Preferred Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Enhanced Liquidity. After a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of $0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Historically, the quarterly distributions paid on the Common OP Units have been equivalent to the dividends paid on AIMCO's Class A Common Stock. We expect this to continue in the future. - Growth Potential. Our organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. For a description of certain risks of our offer, see "Risk Factors." S-32 4286 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to % of the outstanding units of your partnership for consideration per unit of (i) Preferred OP Units, (ii) Common OP Units, or (iii) $ in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1998 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., Denver, Colorado time, on , 1998, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of , 1998 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1998. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-33 4287 , 1998, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. Specifically, we may assign our rights to purchase your units for which you elect to receive cash to IPT or Insignia Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts substantially all of the operations of IPT. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units, unless after the transfer, the transferor and transferee hold less than 10 units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. S-34 4288 THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by the general partner of your partnership (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. S-35 4289 Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you must provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Matters." S-36 4290 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be made on or after , 199 . For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-37 4291 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds % of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than , the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns an indirect interest in and controls the general partner of your partnership and thereby controls the S-38 4292 management of your partnership. In addition, AIMCO owns an indirect interest in and controls the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after , 1998 and at or before the time of acceptance for payment of any such units (whether or not any units have theretofore been accepted for payment and paid for) pursuant to the offer, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the sole judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership S-39 4293 shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the sole judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from , 1998 (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from , 1998 (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the sole judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the sole judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof; or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as the general partner of your partnership or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the sole judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options S-40 4294 to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the sole judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated; or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its sole discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also owns a majority of the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a S-41 4295 substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Securities Exchange Act of 1934, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. The AIMCO Operating Partnership does not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Securities Exchange Act of 1934. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Securities Exchange Act of 1934. Because the units are widely held, however, the AIMCO Operating Partnership believes that, even if it purchases the maximum number of units in the offer, the units will be held of record by more than 300 persons. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by the general partner of your partnership, aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units 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 acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer 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 your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. S-42 4296 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the Partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers are scheduled to be heard on January 8, 1999. On July 30, 1998, certain entities claiming to own limited partnership interests in a number of the limited partnerships for which subsidiaries of IPT act as general partner (including your partnership) filed a complaint in the Superior Court of the State of California, County of Los Angeles against Insignia, the partnerships, the general partners (including your general partner) and additional entities affiliated with several of the defendants. Plaintiffs allege that they have requested from, but have been denied by each of the partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the units of limited partnership interest in each of the partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase units of limited partnership interest in many of the partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the partnerships are organized. Plaintiffs seeks compensatory, punitive and treble damages. Plaintiffs estimate S-43 4297 compensatory damages to exceed $15 million. An answer to the complaint was filed by the defendants on September 15, 1998. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement and the Letter of Transmittal and its legal fees and expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $ . ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-44 4298 CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain Federal income tax consequences of the Offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated 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 Federal income taxation which may be important to a particular person 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 your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the OP Units issued to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most people would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Certain Federal Income Tax Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS Generally, if you exchange your units for cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. The portion of the units that will be treated as sold to the AIMCO Operating Partnership will be equal to a fraction, the numerator of which will be the sum of the cash received by you pursuant to the offer plus the amount of your partnership liabilities deemed transferred to you pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration S-45 4299 pursuant to the offer, and the denominator of which is the fair market value of the aggregate consideration received by you pursuant to the offer (i.e., the sum of the numerator of such fraction plus the fair market value of the OP Units received by you pursuant to the offer). The transfer by you of the remaining portion of such units will generally be treated as a tax-free contribution. At the time of transfer, the adjusted tax basis of the transferred units is allocated between the portion of the units deemed sold and the remaining portion of the units deemed contributed on the basis of each such portion's respective fair market value. For purposes of the partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange will be equal to the lesser of (i) the excess of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange, over the AIMCO Operating Partnership liabilities allocated to you as determined immediately after the exchange or (ii) the product of (A) your partnership's liabilities allocable to you in respect of such transferred units immediately prior to the exchange and (B) a fraction, (x) the numerator of which is the cash received and (y) the denominator of which is the excess of the fair market value of the aggregate consideration received in the exchange over the amount of your partnership liabilities allocable to you in respect of the transferred units immediately prior to the exchange. To the extent that your transfer of units to the AIMCO Operating Partnership is treated as a taxable sale, you will recognize gain or loss in an amount equal to the difference between (i) the cash received plus the amount of your partnership's liabilities deemed transferred in the exchange and (ii) the adjusted tax basis allocable to the portion of such units deemed sold. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. To the extent that your transfer of units in exchange for OP Units is treated as a tax-free contribution to the AIMCO Operating Partnership, you will generally not recognize any gain or loss for Federal income tax purposes. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocated to you, as determined immediately after the exchange. In this event, such excess would be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in the OP Units received, and thereafter as a taxable gain. You will have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. ADJUSTED TAX BASIS In general, investors in your partnership had an initial tax basis in their units equal to the cash investment in the partnership increased by their share of partnership liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized S-46 4300 pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. Thus, you will recognize ordinary income or loss in an amount equal to your partnership's accreted income or loss allocable to such unit. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. S-47 4301 FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the Internal Revenue Service by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following federal income tax events will be deemed to occur with respect to such Termination: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees following consummation of the Offer (thereby increasing the taxable income allocable to their retained units each year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to future allocation of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-48 4302 VALUATION OF UNITS We determined our cash offer consideration by estimating the proceeds that you would receive if your partnership were liquidated. For this purpose, we estimated the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We determined appropriate capitalization rates using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered the property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in the market for equity securities, including those of REITs, and the decline in the availability of commercial mortgage financing. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we calculated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We multiplied each property's 1997 net operating income by its capitalization rate to derive a gross property value as described in the following table:
1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Sunflower Apartments $ % $ Meadow Wood Apartments Stratford Place Apartments Stratford Village
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value any taxes and certain other costs including required capital expenditures and deferred maintenance to derive a net equity value for your partnership of $ . S-49 4303 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Aggregate net operating income (January 1, 1997 to December 31, 1997)................................................. $ Capitalization rate (weighted average)...................... Aggregate gross valuation of your partnership's properties................................................ Plus: Cash and cash equivalents............................. Plus: Other partnership assets, net of security deposits.... Less: Mortgage debt, including accrued interest............. Less: Notes payable, including accrued interest............. Less: Accounts payable and accrued expenses................. Less: Other liabilities..................................... Partnership valuation before taxes and certain costs........ Less: Disposition fees...................................... Less: Extraordinary capital expenditures for deferred maintenance............................................... Less: Municipal transfer taxes.............................. Less: Closing costs......................................... Net valuation of your partnership........................... Percentage of liquidation proceeds allocated to units....... Net valuation of units...................................... Total number of units............................. Valuation per unit.......................................... $ ----------- Cash consideration per unit................................. -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration by the liquidation preference of $100 per Preferred OP Unit. - In order to determine the number of Common OP Units we are offering you, we divided the cash offer consideration by $ , which represents the closing price of AIMCO's Class A Common Stock on the New York Stock Exchange on , 1998. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The AIMCO Operating Partnership has an indirect ownership interest in and controls the general partner of your partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with AIMCO or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. S-50 4304 The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, the general partner of your partnership and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are financially equivalent to your interest in your partnership, adjusted to reflect the expenses of the offer. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $ , based on an estimated value of your partnership's property of $ . The general partner of your partnership has no present intention to liquidate your partnership or to sell or finance your partnership's property. See "Background and Reasons for the Offer". 12. Anticipated annualized distributions with respect to the Preferred OP Units are $ and current annualized distributions with respect to the Common OP Units are $2.25. This is equivalent to distributions of $ per year on the number of tax-deferral % Preferred OP Units, or distributions of $ per year on the number of tax deferral Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the six months ended June 30, 1998 were $4.32 (equivalent to $ on an annualized basis). Therefore, distributions with respect to the Preferred OP Units and Common OP Units that we are offering are expected to be , immediately following our offer, than the distributions with respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions." In evaluating these factors, the general partner of your partnership and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general S-51 4305 partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, the general partner of your partnership has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market; and (b) estimates of the value of the units on a liquidation basis. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, established based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the Offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by the general partner of your partnership. These assumptions relate, among other things to: projections as to the future income, expenses, cash flow and other significant financial matters of your partnership; and the capitalization rates that will be used by prospective buyers when your partnership's assets are liquidated. In addition, these estimates are based upon certain information available to the general partner of your partnership at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. The estimated values in the following chart are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar S-52 4306 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. COMPARISON TABLE Cash offer price............................................ $ Alternatives: Prices on secondary market................................ $ to $ Estimated liquidation proceeds............................ $
Prices on Secondary Market Secondary market sales activity for the units, including privately negotiated sales, has been limited and sporadic. According to information obtained from the general partner of your partnership, from January 1, 1996 to September 30, 1998 an aggregate of 24 units (representing less than 0.10% of the total outstanding units) was transferred (excluding units transferred by Insignia to IPLP in February 1998 and in tender offers) in sale transactions. Set forth in the table below are the high and low sales prices of units for the quarterly periods from January 1, 1996 to September 30, 1998, as reported by the general partner. The transfer paperwork submitted to the general partner often does not include the requested price information or contains conflicting information as to the actual sales price. Accordingly, you should not rely upon this information as being completely accurate. WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY THE GENERAL PARTNER(a) ---------------------- LOW SALES HIGH SALES PRICE PRICE PER UNIT PER UNIT --------- ---------- Fiscal Year Ended December 31, 1998: Third Quarter............................................. $102.50 $320.00 Second Quarter............................................ N/A N/A First Quarter............................................. N/A N/A Fiscal Year Ended December 31, 1997: Fourth Quarter............................................ N/A N/A Third Quarter............................................. N/A N/A Second Quarter............................................ N/A N/A First Quarter............................................. N/A N/A Fiscal Year Ended December 31, 1996: Fourth Quarter............................................ N/A N/A Third Quarter............................................. N/A N/A Second Quarter............................................ N/A N/A First Quarter............................................. N/A N/A
- --------------- (a) Although the general partner requests and records information on the prices at which units are sold, it does not regularly receive or maintain information regarding the bid or asked quotations of secondary market makers, if any. The general partner processes transfers of units only 12 times per year -- on the first day of each month. The prices in the table are based solely on information provided to the general partner by sellers and buyers of units transferred in sale transactions (i.e., excluding transactions believed to result from the death of a limited partner, rollover to an IRA account, establishment of a trust, trustee to trustee transfers, termination of a benefit plan, distributions from a qualified or non-qualified plan, uniform gifts, abandonment of units or similar non-sale transactions). S-53 4307 The AIMCO Operating Partnership believes that, although secondary market sales information probably is not a reliable measure of value because of the limited and inefficient nature of the market for units, this information may be relevant to a limited partner's decision as to whether to tender his or her units pursuant to the offer. At present, privately negotiated sales and sales through intermediaries (e.g., through the trading system operated by American Partnership Board, Inc., which publishes sell offers by holders of units) are the only means available to a limited partner to liquidate an investment in units (other than the offer) because the units are not listed or traded on any exchange or quoted on NASDAQ. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. The general partner of your partnership estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The only significant difference is that the general partner of your partnership assumed liquidation would involve additional selling expenses of % of the sale proceeds. The general partner of your partnership believes this is a normal and customary cost of property sales. The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. In estimating the net liquidation proceeds, your general partner considered, among other things, the following valuations: ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, % of the estimated liquidation proceeds are assumed to be distributed to holders of units. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. S-54 4308 The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against certain liabilities arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's annual reports on Form 10-KSB filed with the SEC for the years ending December 31, 1996 and 1997, and the quarterly report on Form 10-QSB for the period ending June 30, 1998, which reports your partnership's management has indicated to be the most current available financial statements; (iii) reviewed descriptive information concerning your partnership's properties provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's properties for 1996 and 1997 and through June 30, 1998; (v) reviewed operating budgets for your partnership's properties for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's properties; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's properties and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; (x) reviewed available trading information for the units; and (xi) conducted other studies, analysis and inquiries as Stanger deemed appropriate. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the properties, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's properties including any deferred maintenance, and other factors influencing value of your partnership's properties and your partnership. Stanger also performed site inspections of your partnership's properties, reviewed local real estate market conditions, and S-55 4309 discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's properties. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's properties during October and November 1998. In the course of the site visit, the physical facilities of your partnership's properties were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's properties and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix; and information relating to the condition of the properties, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the six month period ending June 30, 1998, the operating budget for 1998 as prepared by your partnership and discussed with management the current and anticipated operating results of your partnership's properties. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's properties, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's properties (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's properties, and expectations of management regarding operating results of your partnership's properties. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed an analysis prepared by the management of your partnership of the estimated liquidation values of units utilizing estimates prepared by your partnership of expenses associated with such a liquidation. The liquidation analysis assumed that your partnership's properties were sold to an independent third-party buyer at the current property value estimated by the management of your partnership and that normal and customary costs of property sale were incurred, that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated between the general and limited partners in accordance with your partnership agreement of limited partnership. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not S-56 4310 performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between the general partner, special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's properties, and the transaction costs and fees associated with a sale of the properties. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's properties that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's properties or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's properties are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's properties is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. S-57 4311 COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $ with respect to your partnership. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger has performed other services for AIMCO in the past, including: general financial advisory services relating to a potential acquisition by AIMCO. However, such acquisition was never completed and no fee was paid to Stanger. S-58 4312 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. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a under Massachusetts law. Delaware limited partnership. The AIMCO Operating Partnership owns interests (either 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 The term of the AIMCO Operating Partnership continues finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms partnership's Cash Available for Distribution (as of the AIMCO Operating Partnership's agreement of defined in your partnership's agreement of limited limited partnership (the "AIMCO Operating Partnership partnership). The termination date of your partnership Agreement") or as provided by law. See "Description of is December 31, 2003. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, hold, The purpose of the AIMCO Operating Partnership is to maintain, operate, lease, sell, dispose of and conduct any business that may be lawfully conducted by otherwise invest in residential, commercial and a limited partnership organized pursuant to the industrial real properties in order to (1) preserve and Delaware Revised Uniform Limited Partnership Act (as protect the partnership's capital, (2) provide capital amended from time to time, or any successor to such appreciation, (3) provide for quarterly cash statute) (the "Delaware Limited Partnership Act"), distributions from operations which may increase over provided that such business is to be conducted in a time and (4) generate sufficient deductions so that the manner that permits AIMCO to be qualified as a REIT, partnership's cash distributions in the early years of unless AIMCO ceases to qualify as a REIT. The AIMCO its operations will not constitute taxable income and Operating Partnership is authorized to perform any and so that partnership will allocate tax losses to the all acts for the furtherance of the purposes and limited partners in such years which the limited business of the AIMCO Operating Partnership, provided partners may use to offset limited amounts of taxable that the AIMCO Operating Partnership may not take, or income from other sources. 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.
S-59 4313 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership was authorized The general partner is authorized to issue additional to issue additional limited partnership interests in partnership interests in the AIMCO Operating your partnership and may admit additional limited Partnership for any partnership purpose from time to partners by selling units for cash and notes to time to the limited partners and to other persons, and selected persons who fulfill the requirements set forth to admit such other persons as additional limited in your partnership's agreement of limited partnership. partners, on terms and conditions and for such capital The capital contribution need not be equal for all contributions as may be established by the general limited partners and no action or consent is required partner in its sole discretion. The net capital in connection with the admission of any additional contribution need not be equal for all OP Unitholders. limited partners. However, after May 25, 1995, the No action or consent by the OP Unitholders is required general partner of your partnership is prohibited from in connection with the admission of any additional OP admitting additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. 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, partici- pating, 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 Your partnership may such fees to its affiliates as is The AIMCO Operating Partnership may lend or contribute set forth in your partnership's agreement of limited funds or other assets to its subsidiaries or other partnership. Your partnership may borrow funds from the persons in which it has an equity investment, and such general partner or its affiliates; provided, however, persons may borrow funds from the AIMCO Operating that such borrowings are on a short-term basis and your Partnership, on terms and conditions established in the partnership may not pay in connection therewith (1) in- sole and absolute discretion of the general partner. To terest or financing charges in excess of the amount the extent consistent with the business purpose of the which would be charged by unrelated lending AIMCO Operating Partnership and the permitted institutions on comparable loans for the same purpose activities of the general partner, the AIMCO Operating in the same locality (and in no event may interest on Partnership may transfer assets to joint ventures, such borrowings exceed 2% per annum above the base rate limited liability companies, partnerships, of interest charged by The First National Bank of corporations, business trusts or other business Boston) or (2) any prepayment charge or penalty. Your entities in which it is or thereby becomes a partnership may not purchase property from the general participant upon such terms and subject to such partner or any of its affiliates unless such party conditions consistent with the AIMCO Operating Part- purchased the property in its name to temporarily hold nership Agreement and applicable law as the general title thereto in order to facilitate the acquisition of partner, in its sole and absolute discretion, believes such property by your partnership, the borrowing of to be advisable. Except as expressly permitted by the money by or obtaining of financing for your AIMCO Operating Partnership Agreement, neither the partnership, the completion of construction of your general partner nor any of its affiliates may sell, partners or any other purpose related to the business transfer or convey any property to the AIMCO Operating of your partnership; provided (1) the purchase price Partnership, directly or indirectly, except pursuant to paid by your partnership does not exceed the cost of transactions that are determined by the general partner the property to the seller, (2) the interest rates on in good faith to be fair and reasonable. the loans secured by the property at the time of acquisition by the seller may not be lower than at the time the property is acquired by your partnership and (c) no compensation or other benefit from the transaction may accrue to the general partner or its affiliates. Unless certain conditions are met, the general partner may not issue any "all-inclusive" or "wrap-around" note to your partnership. Your partnership may invest in entities affiliated with the general partner under certain conditions. Your partnership may not sell or lease any property or loan any funds to the general partner or its affiliates. Any arrangements with a general partner or its affiliates must be (1) in the form of a written contract, (2) fully disclosed to the other partners, (3) terminable upon 60 days' notice and (4) in the ordinary course of such general partner's or affiliate's business. Your partnership may not give an exclusive right to sell or exclusively employ the general partner or its affiliates to sell your partnership's property nor receive any commission in connection with the reinvestment of proceeds of the sale, exchange or
S-60 4314 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP refinancing of any property. Your partnership may not contract with the general partner or its affiliates for the development of any property or the construction of improvements on any property.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and issue evidences of indebtedness. restrictions on borrowings, and the general partner has Your partnership may not incur mortgage indebtedness in full power and authority to borrow money on behalf of connection with any one property in excess of 80% of the AIMCO Operating Partnership. The AIMCO Operating its purchase price. Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand entitles a limited partner to inspect the register with a statement of the purpose of such demand and at listing the names and addresses of all partners and the such OP Unitholder's own expense, to obtain a current number of units owned by each limited partner. Such list of the name and last known business, residence or list will be maintained at the principal office of your mailing address of the general partner and each other partnership and be available for inspection at all OP Unitholder. reasonable times. In addition, each partner has the right to receive by mail, upon written request to your partnership and at such partner's cost, the register of the partners.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive right to manage the business of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership and are authorized to take any action of Inc., which is the general partner. No OP Unitholder any kind and to do anything and everything they deem has any right to participate in or exercise control or necessary in connection with the partnership. Limited management power over the business and affairs of the partners have no right to participate in the management AIMCO Operating Partnership. The OP Unitholders have or conduct of your partnership's business or affairs the right to vote on certain matters described under nor any power or authority to act for or on behalf of "Comparison of Ownership of Your Units and AIMCO OP your partnership in any respect whatsoever. Units -- Voting Rights" 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 Notwithstanding anything to the contrary set forth in partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general not liable, responsible or partner is not liable
S-61 4315 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP accountable for damages or otherwise to your to the AIMCO Operating Partnership for losses partnership or any limited partner arising out of any sustained, liabilities incurred or benefits not derived act performed or any failure to act by any of them if as a result of errors in judgment or mistakes of fact they determined, in good faith, that such act or or law of any act or omission if the general partner failure to act was in the best interests of the acted in good faith. The AIMCO Operating Partnership partnership, and such course of conduct did not Agreement provides for indemnification of AIMCO, or any constitute fraud, bad faith, negligence or misconduct director or officer of AIMCO (in its capacity as the on the part of the general partner. In addition, your previous general partner of the AIMCO Operating partnership will indemnify and save harmless the Partnership), the general partner, any officer or general partner of your partnership against any loss, director of general partner or the AIMCO Operating liability or damage incurred by it as a result of or in Partnership and such other persons as the general connection with its acting as a general partner in partner may designate from and against all losses, connection with the partnership's activities, provided claims, damages, liabilities, joint or several, that such general partner was not guilty of fraud, bad expenses (including legal fees), fines, settlements and faith, negligence or misconduct. The satisfaction of other amounts incurred in connection with any actions any indemnification and any saving harmless shall be relating to the operations of the AIMCO Operating from and limited to partnership assets, and no limited Partnership, as set forth in the AIMCO Operating partner shall have any personal liability on account Partnership Agreement. The Delaware Limited Partnership thereof. 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 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 of 1933.
Anti-Takeover Provisions Under your partnership's agreement of limited Except in limited circumstances, the general partner partnership, the limited partners may remove a general has exclusive management power over the business and partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general majority of the outstanding units. An additional partner may not be removed as general partner of the general partner may be admitted with the consent of the AIMCO Operating Partnership by the OP Unitholders with general partner if such party consents to become a or without cause. Under the AIMCO Operating Partnership general partner, the limited partners holding more than Agreement, the general partner may, in its sole two-thirds of the outstanding units consent to the discretion, prevent a transferee of an OP Unit from admission of the additional general partner and the becoming a substituted limited partner pursuant to the additional general partner executes and acknowledges AIMCO Operating Partnership Agreement. The general such instruments as the general partner deems necessary partner may exercise this right of approval to deter, or advisable, including the adoption of your partner- delay or hamper attempts by persons to acquire a ship's agreement of limited partnership. A limited controlling interest in the AIMCO Operating Partner- partner may substitute a transferee of his units in ship. Additionally, the AIMCO Operating Partnership such limited partner's place without the consent of the Agreement contains restrictions on the ability of OP general partner, subject to certain conditions. Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth be amended by the general partner without the consent in the AIMCO Operating Partnership Agreement, whereby of the limited partners if such amendment: (1) adds to the general partner may, without the consent of the OP the representation, duties, or obligations of the Unitholders, amend the AIMCO Operating Partnership general partner or surrenders any right or power Agreement, amendments to the AIMCO Operating granted to the general partner, (2) cures any Partnership Agreement require the consent of the ambiguity, corrects or supplements any provision which holders of a majority of the outstanding Common OP may be inconsistent with any other provision or makes Units, excluding AIMCO and certain other limited any other provision with respect to matters or exclusions (a "Majority in Interest"). Amendments to questions arising under your partnership's agreement of the AIMCO Operating Partnership Agreement may be limited partnership consistent with the provisions of proposed by the general partner or by holders of a your partnership's agreement of limited partnership, Majority in Interest. Following such proposal, the (3) deletes or adds any provision required by any general partner will submit any proposed amendment to applicable law, (4) reflects any reduction of the the OP Unitholders. The general partner will seek the partners' capital accounts or (5) reflects a change in written consent of the OP Unitholders on the proposed the name or the location of the principal place of amendment or will call a meeting to vote thereon. See business of your partnership; provided that no "Description of OP Units -- Amendment of the AIMCO amendments may be adopted unless the amendment; (1) is Operating Partnership Agreement" in the accompanying for the benefit of or not adverse to the interests of Prospectus. the limited partners, (2) is consistent with the duties of the general partner, (3) does not affect the distribution
S-62 4316 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP of available cash flow, and (4) does not affect the limited liability of the limited partners or the status of the partnership for Federal income tax purposes. All other amendments require the consent of the general partner and the limited partners holding a majority of the outstanding units, provided that such amendment does not allow the limited partners to participate in the management of the partnership's business or modify the limited liability of the limited partners.
Compensation and Fees The general partner of your partnership does not The general partner does not receive compensation for receive an annual management fee for its services as its services as general partner of the AIMCO Operating general partner of your partnership but may receive Partnership. However, the general partner is entitled reimbursement for expenses incurred in such capacity. to payments, allocations and distributions in its The general partner was reimbursed $31,000 for ex- capacity as general partner of the AIMCO Operating penses incurred during the first 6 months of 1998. Partnership. In addition, the AIMCO Operating Part- nership 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 Except for fraud, willful misconduct or gross partnership, a limited partner is not for the debts, negligence, no OP Unitholder has personal liability for liabilities, or obligations of your partnership in the AIMCO Operating Partnership's debts and excess of his capital contribution, and his share of obligations, and liability of the OP Unitholders for undistributed profits. the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their invest- ment 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 compli- ance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 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 Unless otherwise provided for in the relevant partnership, the general partner is not required to partnership agreement, Delaware law generally requires manage the partnership as its sole and exclusive a general partner of a Delaware limited partnership to function and they may have other business interests and adhere to fiduciary duty standards under which it owes may engage in other activities in addition to those its limited partners the highest duties of good faith, relating to the partnership, including the rendering of fairness and loyalty and which generally prohibit such advice or services of any kind to other investors and general partner from taking any action or engaging in the making or management of other investments. Neither any transaction as to which it has a conflict of the partnership nor any partner shall have any right by interest. The AIMCO Operating Partnership Agreement virtue of the partnership agreement or the partnership expressly authorizes the general partner to enter into, relation in or to such other ventures or activities or on behalf of the AIMCO Operating Partnership, a right to the income or proceeds derived therefrom and the of first opportunity arrangement and other conflict pursuit of such venture, even if competitive with the avoidance agreements with various affiliates of the business of your partnership, shall not be deemed AIMCO Operating Partnership and the general partner, on wrongful or improper. The general partner is obligated such terms as the general partner, in its sole and only under certain circumstances to present investment absolute discretion, believes are advisable. The AIMCO opportunities to the partnership. The general Operating Partnership
S-63 4317 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner may not possess partnership property or assign Agreement expressly limits the liability of the general you partnership's right in specific properties for partner by providing that the general partner, and its other than your partnership's purpose. 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. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material differences between The AIMCO Operating Partnership is not subject to the taxation of your partnership and the AIMCO Federal income taxes. Instead, each holder of OP Units Operating Partnership. 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 an 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 "publicity 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 (as defined below) 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 OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such 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.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity equity interests entitling each equity interests entitling each OP interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of distri- and as declared by the board of rata share of cash distributions butions to be made to the partners directors of the general partner of made from Available Cash (as such of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO quarterly cash distribution at a Operating Partnership Agreement) to rate of the
S-64 4318 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS $ per Preferred OP Unit, partners of the AIMCO Operating subject to adjustments from time to Partnership. To the extent the time on or after the fifth AIMCO Operating Partnership sells anniversary of the issue date of or refinances its assets, the net the Preferred OP Units. proceeds therefrom generally will be retained by the AIMCO Oper- ating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders vote of the limited partners owning Operating Partnership Agreement, have voting rights only with a majority of the outstanding the holders of the Preferred OP respect to certain limited matters units, the limited partners may Units will have the same voting such as certain amendments and amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain certain exceptions; terminate your Units" in the accompanying transactions such as the partnership; remove a general Prospectus. So long as any institution of bankruptcy partner; and approve or disapprove Preferred OP Units are outstand- proceedings, an assignment for the the sale at one time of all or ing, in addition to any other vote benefit of creditors and certain substantially all of the assets of or consent of partners required by transfers by the general partner of your partnership. Such voting law or by the AIMCO Operating its interest in the AIMCO Operating rights may only be exercised if Partnership Agreement, the Partnership or the admission of a your partnership receives an affirmative vote or consent of successor general partner. opinion from counsel which counsel holders of at least 50% of the is satisfactory to a majority in outstanding Preferred OP Units will Under the AIMCO Operating Partner- interest of the limited partners, be necessary for effecting any ship Agreement, the general partner that such action may be effected amendment of any of the provisions has the power to effect the without subjecting the limited of the Partnership Unit Desig- acquisition, sale, transfer, partner to liability as general nation of the Preferred OP Units exchange or other disposition of partner or a Massachusetts court that materially and adversely any assets of the AIMCO Operating having jurisdiction over the matter affects the rights or preferences Partnership (including, but not enters a judgment, not subject to of the holders of the Preferred OP limited to, the exercise or grant further appeal, to such effect. Units. The creation or issuance of of any conversion, option, The general partner of your any class or series of partnership privilege or subscription right or partnership may cause its units, including, without any other right available in dissolution by retiring. In such limitation, any partnership units connection with any assets at any event, your partnership may that may have rights senior or time held by the AIMCO Operating continue if the remaining general superior to the Preferred OP Units, Partnership) or the merger, partners elect to do so within shall not be deemed to materially consolidation, reorganization or thirty days of the retirement. adversely affect the rights or other combination of the AIMCO preferences of the holders of Operating Partnership with or into Preferred OP Units. With respect to another entity, all without the the exercise of the above de- consent of the OP Unitholders. scribed voting rights, each Preferred OP Units shall have one The general partner may cause the (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership 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. See "Description of OP Units -- Dissolution
S-65 4319 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and Winding Up" in the accompanying Prospectus.
Distributions Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units, the cash available for declared by the board of directors the AIMCO Operating Partnership distribution, whether arising from of the general partner of the AIMCO Agreement requires the general operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of Cash Available for $ per Preferred OP Unit; tribute quarterly all, or such Distribution will be distributed provided, however, that at any time portion as the general partner may quarterly, within sixty days af- and from time to time on or after in its sole and absolute discretion ter the close of such quarter. The the fifth anniversary of the issue determine, of Available Cash (as distributions payable to the date of the Preferred OP Units, the defined in the AIMCO Operating partners are not fixed in amount AIMCO Operating Partnership may Partnership Agreement) generated by and depend upon the operating adjust the annual distribution rate the AIMCO Operating Partnership results and net sales or on the Preferred OP Units to the during such quarter to the general refinancing proceeds available from lower of (i) % plus the annual partner, the special limited the disposition of your interest rate then applicable to partner and the holders of Common partnership's assets. U.S. Treasury notes with a maturity OP Units on the record date of five years, and (ii) the annual established by the general partner dividend rate on the most recently with respect to such quarter, in issued AIMCO non-convertible accordance with their respective preferred stock which ranks on a interests in the AIMCO Operating parity with its Class H Cumu- Partnership on such record date. lative Preferred Stock. Such Holders of any other Preferred OP distributions will be cumulative Units issued in the future may have from the date of original issue. priority over the general partner, Holders of Preferred OP Units will the special limited partner and not be entitled to receive any holders of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on the Available Cash, distributions upon Preferred OP Units. No interest, or liquidation or other distributions. sum of money in lieu of interest, See "Per Share and Per Unit Data" shall be payable in respect of any in the accompanying Prospectus. distribution payment or payments on the Preferred OP Units that may be The general partner in its sole and in arrears. absolute discretion may distribute to the OP Unitholders Available When distributions are not paid in Cash on a more frequent basis and full upon the Preferred OP Units or provide for an appropriate record any Parity Units, all distributions date. declared upon the Preferred OP Units and any Parity Units shall be The AIMCO Operating Partnership declared ratably in proportion to Agreement requires the general the respective amounts of partner to take such reasonable distributions accumulated, accrued efforts, as determined by it in its and unpaid on the Preferred OP sole and absolute discretion and Units and such Parity Units. Unless consistent with AIMCO's full cumulative distributions on qualification as a REIT, to cause the Preferred OP Units have been the AIMCO Operating Partnership to declared and paid, except in distribute sufficient amounts to limited circumstances, no enable the general partner to distributions may be declared or transfer funds to AIMCO and enable paid or set apart for payment by AIMCO to pay stockholder dividends the AIMCO Operating Partnership and that will (i) satisfy the no other distribution of cash or requirements for qualifying as a other property may be declared or REIT under the Code and the made, directly or indirectly, by Treasury Regulations and (ii) avoid the AIMCO Operating Partnership any Federal income or excise tax with respect to any Junior Units, liability of AIMCO. See nor shall any Junior Units be re- "Description of OP deemed, purchased or otherwise Units -- Distributions" in the acquired for consideration, nor accompanying Prospectus. shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-66 4320 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights A limited partner may transfer his There is no public market for the There is no public market for the units to any person if: (1) a duly Preferred OP Units and the OP Units. The AIMCO Operating Part- executed, written instrument of Preferred OP Units are not listed nership Agreement restricts the assignment is delivered to the on any securities exchange. The transferability of the OP Units. general partner which is Preferred OP Units are subject to Until the expiration of one year satisfactory to the general partner restrictions on transfer as set from the date on which an OP and includes the written acceptance forth in the AIMCO Operating Unitholder acquired OP Units, of the transferee of all of the Partnership Agreement. subject to certain exceptions, such terms of your partnership's OP Unitholder may not transfer all agreement of limited partnership, Pursuant to the AIMCO Operating or any portion of its OP Units to (2) counsel for your partnership is Partnership Agreement, until the any transferee without the consent not of the opinion that such sale expiration of one year from the of the general partner, which violates applicable securities laws date on which a holder of Preferred consent may be withheld in its sole and (3) after the transfer, the OP Units acquired Preferred OP and absolute discretion. After the transferor and transferee does not Units, subject to certain expiration of one year, such OP hold less than 10 units, except in exceptions, such holder of Unitholder has the right to limited circumstances. A transferee Preferred OP Units may not transfer transfer all or any portion of its may become a substituted limited all or any portion of its Pre- OP Units to any person, subject to partner if: (1) the instrument of ferred OP Units to any transferee the satisfaction of certain assignment makes such an election without the consent of the general conditions specified in the AIMCO and (2) the substitute limited partner, which consent may be Operating Partnership Agreement, partner pays all fees incurred by withheld in its sole and absolute including the general partner's your partnership. discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- OP Units has the right to transfer Transfers and Withdrawals" in the all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of certain After the first anniversary of conditions specified in the AIMCO becoming a holder of Common OP Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO Operating Partnership Agreement, to require After a one-year holding period, a the AIMCO Operating Partnership to holder may redeem Preferred OP redeem all or a portion of the Units and receive in exchange Common OP Units held by such party therefor, at the AIMCO Operating in exchange for a cash amount based Partnership's option, (i) subject on the value of shares of Class A to the terms of any Senior Units, Common Stock. See "Description of cash in an amount equal to the OP Units -- Redemption Rights" in Liquidation Preference of the the accompanying Prospectus. Upon Preferred OP Units tendered for receipt of a notice of redemption, redemption, (ii) a number of shares the AIMCO Operating Partnership of Class I Cumulative Preferred may, in its sole and absolute Stock of AIMCO that pay an discretion but subject to the aggregate amount of dividends yield restrictions on the ownership of equivalent to the distributions on Class A Common Stock imposed under the Preferred OP Units tendered for AIMCO's charter and the transfer redemption and are part of a class restrictions and other limitations or series of preferred stock that thereof, elect to cause AIMCO to is then listed on the New York acquire some or all of the tendered Stock Exchange or another national Common OP Units in exchange for securities exchange, or (iii) a Class A Common Stock, based on an number of shares of Class A Common exchange ratio of one share of Stock of AIMCO that is equal in Class A Common Stock for each Com- Value to the Liquidation Preference mon OP Unit, subject to adjustment of the Preferred OP Units tendered as provided in the AIMCO Operating for redemption. The Preferred OP Partnership Agreement. Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-67 4321 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class E Partnership Preferred Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $ per Preferred OP Unit (equivalent to % per annum of the $100 stated liquidation preference); provided, however, that at any time and from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) % plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any S-68 4322 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $100 per Preferred OP Unit (the "Stated Preference"), plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred S-69 4323 OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the New York Stock Exchange or another national securities exchange, or (iii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. S-70 4324 DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to $ per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after , , AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or S-71 4325 in the future jeopardize AIMCO's status as a REIT. 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 I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred 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 Class I Preferred 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 (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred 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 Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-72 4326 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of quarterly cash distribution at a rate of $ per $ per annum per share. Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as partnership, the holders of the Preferred OP Units will otherwise required by applicable law. have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of Operating Partnership's agreement of limited directors then constituting the AIMCO board of partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together the Preferred OP Units that materially and adversely with the holders of shares of all other voting affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
S-73 4327 PREFERRED OP UNITS CLASS I PREFERRED STOCK Distributions Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment, quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be % plus the annual interest rate then applicable to payable in respect of any dividend payment or payments U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears. (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock will not be entitled to receive any distributions in will be declared ratably in proportion to the excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid Units that may be in arrears. dividends on the Class I Preferred Stock have been paid, or declared and set apart for payment, except in When distributions are not paid in full upon the limited circumstances, no dividends may be declared or Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred AIMCO Operating Partnership and no other distribution Stock -- Dividends." of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any and the Preferred OP Units are not listed on any person will be limited such that the sum of the securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) of the aggregate Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock. of limited partnership, until the expiration of one Further, certain transfers which may have the effect of year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab Units acquired Preferred OP Units, subject to certain initio. exceptions, such holder of Preferred OP Units may not transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs to any transferee without the consent of the general which, if effective, would result in any person partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the ship's agreement of limited partnership, including the exclusive benefit of one or more charitable general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited transferee will generally have no rights in such After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee. Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
S-74 4328 PREFERRED OP UNITS CLASS I PREFERRED STOCK ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held (ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit. for redemption and are part of a class or series of Upon such sale, the interest of the charitable preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee, or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited Preference of the Preferred OP Units tendered for transferee did not give value for the shares in redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the "Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after , AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-75 4329 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became indirectly owned and controlled by AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general partner of your partnership is an affiliate of the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We have an indirect ownership interest in and control the general partner of your partnership and we have a majority interest in the manager of your partnership's property. The general partner of your partnership receives no fee for its services as general partner of your partnership but may receive reimbursement for expenses incurred in such capacity. The general partner of your partnership received fees and reimbursements totaling $90,000 in 1996, $86,000 in 1997 and $31,000 for the first 6 months of 1998. The property manager received management fees of $335,000 in 1996, $345,000 in 1997 and $180,000 for the first six months of 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-76 4330 YOUR PARTNERSHIP GENERAL Winthrop Growth Investors 1 Limited Partnership was organized on June 20, 1998, under the laws of the State of Massachusetts. Its primary business is real estate ownership and related operations. Your partnership 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. Your partnership's investment portfolio currently consists of the following four residential apartment complexes: Sunflower Apartments, a 248-unit complex in Dallas, Texas; Meadow Wood Apartments, a 356-unit complex in Jacksonville, Florida; Stratford Place Apartments, a 350-unit complex in Gaithersburg, Maryland; and Stratford Village, a 224-unit complex in Montgomery, Alabama. The general partner of your partnership is Two Winthrop Properties, Inc., and we have an indirect interest in and control over your general partner. A company in which we own an indirect interest and control serves as manager of the properties owned by your partnership. As of September 15, 1998, there were 23,139 units of limited partnership interest issued and outstanding, which were held of record by 1,031 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. For additional information about your partnership, please refer to the annual and quarterly reports prepared by your partnership which accompany this Prospectus Supplement. ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP Your partnership files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document your partnership files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Your partnership's SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information your partnership files with them, which means that we can disclose important information to you about your partnership by referring you to those documents. The following reports prepared by your partnership are incorporated by reference and considered to be part of this Prospectus Supplement: - Annual Report on Form 10-KSB, as amended, for the year ended December 31, 1997; - Quarterly Reports on Form 10-QSB, as amended, for the quarters ended March 31, 1998 and June 30, 1998 and - Current Report on Form 8-K, dated October 16, 1998. In order to assist you in making your decision with respect to our offer, this Prospectus Supplement is accompanied by a copy of the annual and quarterly reports described above. ANTICIPATED TERM AND TERMINATION OF YOUR PARTNERSHIP Pursuant to a prospectus dated May 11, 1984, no predictions of when a sale or other disposition of a property would be made, other than when a sale or disposition appears to be advantageous. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2003, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES In general, the general partner of your partnership regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets S-77 4331 conditions. The general partner monitors each property's specific locale and sub-market conditions evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property, tax implications and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. Based on the above considerations, the general partner has determined that it is not in the best interests of limited partners to sell or refinance any property at the present time. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a majority-owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, 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. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership is not liable, responsible or accountable for damages or otherwise to your partnership or any limited partner arising out of any act performed or any failure to act by any of them if they determined, in good faith, that such act or failure to act was in the best interests of the partnership, and such course of conduct did not constitute fraud, bad faith, negligence or misconduct on the part of the general partner. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such provision in your partnership's agreement of limited partnership. The general partner of your partnership is indirectly owned and controlled by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, your partnership will indemnify and save harmless the general partner of your partnership against any loss, liability or damage incurred by it as a result of or in connection with its acting as a general partner in connection with the partnership's activities, provided that such general partner was not guilty of fraud, bad faith, negligence or misconduct. The satisfaction of any indemnification and any saving harmless shall be from and limited to partnership assets, and no limited partner shall have any personal liability on account thereof. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership. 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 of Cash Available for Distribution will be distributed quarterly, within sixty days after the close of such quarter. 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 make distributions in the past and is projected to make distributions in 1998. The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.00.
PERIOD DISTRIBUTIONS - ------ ------------- January 1, 1995 - December 31, 1995......................... $6.48 January 1, 1996 - December 31, 1996......................... 8.64 January 1, 1997 - December 31, 1997......................... 8.64 January 1, 1998 - June 30, 1998............................. 4.32
S-78 4332 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate approximately a 21.06% limited partnership interest in your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past 60 days, or (iii) have 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. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ $90,000 1997........................................................ 86,000 1998 (through June 30)...................................... 31,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ $335,000 1997........................................................ 345,000 1998 (through June 30)...................................... 180,000
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to the general partner of your partnership, or the compensation paid to the property manager or AIMCO and its affiliates. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $ million will be required to purchase all of the units sought in the offer, if such units are tendered for cash. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-79 4333 If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. Following the IPT merger, we may obtain funds pursuant to a credit agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinion will be sent by the Information Agent. EXPERTS The consolidated financial statements of Winthrop Growth Investors 1 Limited Partnership appearing in Winthrop Growth Investors 1 Limited Partnership Annual Report (Form 10-KSB) for the year ended December 31, 1997, have been audited by Imowitz Koenig & Co., LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 4334 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: [ ] Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which you own an indirect interest in and which you control the general partner (the "General Partner") of [ ] (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which a minority of the outstanding limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $ in cash, or Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's annual reports on Form 10-KSB filed with the Securities and Exchange Commission for the years ended December 31, 1996 and 1997, and quarterly report on Form 10-QSB for the period ending June 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the properties owned by the Partnership (the "Properties"), including location, number of units and unit mix, age, amenities and land acreage; A-1 4335 4. Reviewed summary historical operating statements for the Properties, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; 5. Reviewed the 1998 operating budget for the Properties prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Properties and the Partnership prepared by the Partnership's management, including revenues and expenses, net operating income, occupancy, capital improvements, debt service, residual value, and, in the case of the Partnership, general and administrative expenses and cash distributions to the General Partners and the Limited Partners;] 7. [Reviewed internal analysis prepared by the Partnership of the estimated current net liquidation value of the Partnership per Unit of limited partnership interest;] 8. Discussed with management market conditions for the Properties; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Properties and the Partnership; the physical condition of the Properties including any deferred maintenance; and other factors influencing value of the Properties and the Partnership; 9. Performed a site inspection of each of the Properties; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Properties, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Properties; 11. Reviewed information provided by the Company relating to debt encumbering the Properties; 12. [Reviewed any bids received for the Properties or publicly disclosed tender offers for the Units during the past two years;] and 13. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Properties, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Properties. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Properties or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Properties is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of A-2 4336 the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey October , 1998 A-3 4337 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general partner of your partnership, and the directors of AIMCO, are set forth below. The two directors of AIMCO-GP and the general partner of your partnership are Terry Considine and Peter Kompaniez. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder David L. Williams............................ Executive Vice President -- Property Operations Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law.
B-2 4339
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 4340
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations of AIMCO since January 1997. Mr. Williams has been Executive Vice President -- Operations of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, 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 Suite Hotels, Inc. and Florida East Coast Industries, Inc.
B-4 4341
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4342 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and any other required documents should be sent or delivered by you or your broker, dealer, bank, trust company or other nominee to the Information Agent as set forth below. Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 On the Internet: www.clc-online.com 4343 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. AIMCO 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) if a judgment or other final adjudication 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 MGCL 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 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 upon 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 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. THE AIMCO OPERATING PARTNERSHIP 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 II-1 4344 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 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. ITEM 21. EXHIBITS. (a) *4.1 Specimen certificate for Class A Common Stock. *4.2 Specimen certificate for Common OP Unit. **5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of the Class A Common Stock and Preferred Stock offered hereby. **5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of the Common OP Units and the Preferred OP Units offered hereby. **8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters. ***12.1 Calculation of ratio of earnings to fixed charges. ***12.2 Calculation of ratio of earnings to combined fixed charges and preferred stock dividends. *****23.1 Consent of Ernst & Young LLP, Denver, Colorado. *****23.2 Consent of Ernst & Young LLP, Chicago, Illinois. *****23.3 Consent of Ernst & Young LLP, Greenville, South Carolina. *****23.4 Consent of Ernst & Young LLP, Indianapolis, Indiana. *****23.5 Consent of Arthur Andersen LLP. **23.6 Consent of Piper & Marbury L.L.P. (included in opinion filed as Exhibit 5.1). **23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in opinion filed as Exhibit 5.2). 23.8 Consents of KPMG Peat Marwick LLP with respect to financial statements of the following entities: *****23.8.1 -- Baywood Partners, Ltd. *****23.8.2 -- Burgundy Court Associates, L.P. *****23.8.3 -- Catawba Club Associates, L.P. *****23.8.4 -- Georgetown of Columbus Associates, L.P. *****23.8.5 -- La Colina Partners, Ltd. *****23.8.6 -- Lake Eden Associates, L.P. *****23.8.7 -- Landmark Associates, Ltd. *****23.8.8 -- Northbrook Apartments, Ltd. *****23.8.9 -- Shaker Square, L.P. *****23.8.10 -- Thurber Manor Associates, Limited Partnership. *****23.8.11 -- Quail Run Associates, L.P. *****23.8.12 -- Sycamore Creek Associates, L.P. *****23.9 Consent of Portock, Bye & Co. (Brampton Associates Partnership). 23.10 Consents of Ernst & Young LLP, Greenville, South Carolina with respect to financial statements of the following entities: *****23.10.1 -- Rivercreek Apartments Limited Partnership. *****23.10.2 -- Calmark Heritage Park II Ltd. *****23.10.3 -- Yorktown Towers Associates. *****23.10.4 -- Shannon Manor Apartments, a Limited Partnership. *****23.10.5 -- Woodmere Associates, L.P. *****23.10.6 -- Salem Arms of Augusta Limited Partnership.
II-2 4345 *****23.10.7 -- Coastal Commons Limited Partnership. *****23.10.8 -- Snowden Village Associates, L.P. *****23.10.9 -- Sharon Woods, L.P. *****23.10.10 -- Rivercrest Apartments, Limited. ****23.10.11 -- Angeles Income Properties, Ltd. II. ****23.10.12 -- Angeles Income Properties, Ltd. III. ****23.10.13 -- Angeles Income Properties, Ltd. IV. ****23.10.14 -- Angeles Income Properties, Ltd. 6. ****23.10.15 -- Angeles Opportunity Properties, Ltd. ****23.10.16 -- Angeles Partners VII. ****23.10.17 -- Angeles Partners VIII. ****23.10.18 -- Angeles Partners IX. ****23.10.19 -- Angeles Partners X. ****23.10.20 -- Angeles Partners XI. ****23.10.21 -- Angeles Partners XII. ****23.10.22 -- Angeles Partners XIV. ****23.10.23 -- Consolidated Capital Institutional Properties/2. ****23.10.24 -- Consolidated Capital Institutional Properties/3. ****23.10.25 -- Consolidated Capital Properties III. ****23.10.26 -- Consolidated Capital Properties IV. ****23.10.27 -- Consolidated Capital Properties V. ****23.10.28 -- Consolidated Capital Properties VI. ****23.10.29 -- Davidson Diversified Real Estate I, L.P. ****23.10.30 -- Davidson Diversified Real Estate II, L.P. ****23.10.31 -- Davidson Diversified Real Estate III, L.P. ****23.10.32 -- Davidson Growth Plus, L.P. ****23.10.33 -- Davidson Income Real Estate, L.P. ****23.10.34 -- Investors First-Staged Equity. ****23.10.35 -- Johnstown/Consolidated Income Partners. ****23.10.36 -- Multi-Benefit Realty Fund '87-1. ****23.10.37 -- Shelter Properties III. ****23.10.38 -- Shelter Properties VI. ****23.10.39 -- Shelter Properties VII Limited Partnership. ****23.10.40 -- U.S. Realty Partners Limited Partnership. *****23.11 Consents of Deloitte & Touche (Cedar-Tree Investors Limited Partnership and Wingfield Investors Limited Partnership). ****23.11.1 -- HCW Pension Real Estate Fund Limited Partnership. ****23.11.2 -- United Investors Growth Properties. ****23.11.3 -- United Investors Growth Properties II. ****23.11.4 -- United Investors Income Properties. *****23.12 Consents of Reznick Fedder & Silverman (Burnsville Apartments, LP (Minneapolis Associates II Limited Partnership), Chestnut Hill Associates Limited Partnership, DFW Apartment Investors Limited Partnership, DFW Residential Investors Limited Partnership, Olde Mill Investors Limited Partnership, Park Towne Place Associates Limited Partnership and Texas Residential Investors Limited Partnership, Winthrop Apartment Investors Limited Partnership). ****23.12.1 -- Riverside Park Associates L.P. ****23.12.2 -- Springhill Lake Investors Limited Partnership. *****23.13 Consent of Barry S. Fishman & Associates (Ravensworth Associates Limited Partnership).
II-3 4346 23.14 Consents of Imowitz Koenig LLP with respect to financial statements of the following entities: *****23.14.1 -- Winthrop Apartment Investors Limited Partnership. *****23.14.2 -- Winrock -- Houston Limited Partnership. ****23.14.3 -- Century Properties Fund XVI. ****23.14.4 -- Century Properties Fund XVIII. ****23.14.5 -- Century Properties Fund XIX. ****23.14.6 -- Century Properties Growth Fund XXII. 23.14.7 -- [Reserved]. ****23.14.8 -- Fox Strategic Housing Income Partners. ****23.14.9 -- National Property Investors 8. ****23.14.10 -- Winthrop Growth Investors 1 Limited Partnership. ****23.15.1 Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert Real Estate Associates II). *****24.1 Power of Attorney for Apartment Investment and Management Company. *****24.2 Power of Attorney for AIMCO Properties, L.P.
- --------------- * Incorporated by reference from AIMCO's Registration Statement on Form 8-A filed on July 19, 1994. ** To be filed by amendment. *** Incorporated by reference from AIMCO's Form 8-K filed on July 2, 1998. **** Filed herewith. ***** Previously filed. (b)Financial Statement Schedules Not Applicable. (c)Report, opinion or appraisal To be included in Prospectus Supplement, as applicable. II-4 4347 ITEM 22. UNDERTAKINGS. (a) The undersigned registrants hereby undertake: (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, as amended; (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 a 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; (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, 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. (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. (b) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, as amended, each filing of the registrants' annual reports pursuant to Section 13(a) or 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 Securities Exchange Act of 1934) 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. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants 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 registrants 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. (d) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the 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 II-5 4348 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. (e) The undersigned registrants hereby undertake 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. (f) The undersigned registrants hereby undertake to not issue securities under this registration statement in order to effect any "roll-up transaction" (as such term in defined in paragraph (c) of Item 901 of Regulation S-K). Furthermore, the undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning an offer to purchase partnership interests in exchange for securities issued under this registration statement, prior to commencing such an offer, if pursuant to the provisions of subparagraph (iv), (vii) or (viii) of paragraph (c)(2) of Item 901 of Regulation S-K, such offer fails to constitute a roll-up transaction. II-6 4349 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Apartment Investment and Management Company has duly caused this Amendment No. 3 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on the 26th day of October, 1998. APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ TERRY CONSIDINE ---------------------------------- Terry Considine, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY CONSIDINE Chairman and Chief October 26, 1998 - ----------------------------------------------------- Executive Officer Terry Considine /s/ PETER K. KOMPANIEZ* Vice Chairman and President October 26, 1998 - ----------------------------------------------------- Peter K. Kompaniez /s/ TROY D. BUTTS* Senior Vice President and October 26, 1998 - ----------------------------------------------------- Chief Financial Officer Troy D. Butts /s/ RICHARD S. ELLWOOD* Director October 26, 1998 - ----------------------------------------------------- Richard S. Ellwood /s/ J. LANDIS MARTIN* Director October 26, 1998 - ----------------------------------------------------- J. Landis Martin /s/ THOMAS L. RHODES* Director October 26, 1998 - ----------------------------------------------------- Thomas L. Rhodes /s/ JOHN D. SMITH* Director October 26, 1998 - ----------------------------------------------------- John D. Smith *By: /s/ TERRY CONSIDINE ------------------------------------------------ Terry Considine, as Attorney-in-Fact for each of the persons indicated
4350 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, AIMCO Properties, L.P. has duly caused this Amendment No. 3 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on the 26th day of October, 1998. AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. its General Partner By: /s/ TERRY CONSIDINE ---------------------------------- Terry Considine, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY CONSIDINE Chairman and Chief Executive October 26, 1998 - ----------------------------------------------------- Officer Terry Considine /s/ PETER K. KOMPANIEZ* Vice Chairman and President October 26, 1998 - ----------------------------------------------------- Peter K. Kompaniez /s/ TROY D. BUTTS* Senior Vice President and October 26, 1998 - ----------------------------------------------------- Chief Financial Officer Troy D. Butts *By: /s/ TERRY CONSIDINE ------------------------------------------------ Terry Considine, as Attorney-in-Fact for each of the persons indicated
4351 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- *4.1 Specimen certificate for Class A Common Stock. *4.2 Specimen certificate for Common OP Unit. **5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of the Class A Common Stock and Preferred Stock offered hereby. **5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of the Common OP Units and the Preferred OP Units offered hereby. **8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters. ***12.1 Calculation of ratio of earnings to fixed charges. ***12.2 Calculation of ratio of earnings to combined fixed charges and preferred stock dividends. *****23.1 Consent of Ernst & Young LLP, Denver, Colorado. *****23.2 Consent of Ernst & Young LLP, Chicago, Illinois. *****23.3 Consent of Ernst & Young LLP, Greenville, South Carolina. *****23.4 Consent of Ernst & Young LLP, Indianapolis, Indiana. *****23.5 Consent of Arthur Andersen LLP. **23.6 Consent of Piper & Marbury L.L.P. (included in opinion filed as Exhibit 5.1). **23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in opinion filed as Exhibit 5.2). 23.8 Consents of KPMG Peat Marwick LLP with respect to financial statements of the following entities: *****23.8.1 -- Baywood Partners, Ltd. *****23.8.2 -- Burgundy Court Associates, L.P. *****23.8.3 -- Catawba Club Associates, L.P. *****23.8.4 -- Georgetown of Columbus Associates, L.P. *****23.8.5 -- La Colina Partners, Ltd. *****23.8.6 -- Lake Eden Associates, L.P. *****23.8.7 -- Landmark Associates, Ltd. *****23.8.8 -- Northbrook Apartments, Ltd. *****23.8.9 -- Shaker Square, L.P. *****23.8.10 -- Thurber Manor Associates, Limited Partnership. *****23.8.11 -- Quail Run Associates, L.P. *****23.8.12 -- Sycamore Creek Associates, L.P. *****23.9 Consent of Portock, Bye & Co. (Brampton Associates Partnership). 23.10 Consents of Ernst & Young LLP, Greenville, South Carolina with respect to financial statements of the following entities: *****23.10.1 -- Rivercreek Apartments Limited Partnership. *****23.10.2 -- Calmark Heritage Park II Ltd. *****23.10.3 -- Yorktown Towers Associates. *****23.10.4 -- Shannon Manor Apartments, a Limited Partnership. *****23.10.5 -- Woodmere Associates, L.P. *****23.10.6 -- Salem Arms of Augusta Limited Partnership. *****23.10.7 -- Coastal Commons Limited Partnership.
4352
EXHIBIT NUMBER DESCRIPTION ------- ----------- *****23.10.8 -- Snowden Village Associates, L.P. *****23.10.9 -- Sharon Woods, L.P. *****23.10.10 -- Rivercrest Apartments, Limited. ****23.10.11 -- Angeles Income Properties, Ltd. II. ****23.10.12 -- Angeles Income Properties, Ltd. III. ****23.10.13 -- Angeles Income Properties, Ltd. IV. ****23.10.14 -- Angeles Income Properties, Ltd. 6. ****23.10.15 -- Angeles Opportunity Properties, Ltd. ****23.10.16 -- Angeles Partners VII. ****23.10.17 -- Angeles Partners VIII. ****23.10.18 -- Angeles Partners IX. ****23.10.19 -- Angeles Partners X. ****23.10.20 -- Angeles Partners XI. ****23.10.21 -- Angeles Partners XII. ****23.10.22 -- Angeles Partners XIV. ****23.10.23 -- Consolidated Capital Institutional Properties/2. ****23.10.24 -- Consolidated Capital Institutional Properties/3. ****23.10.25 -- Consolidated Capital Properties III. ****23.10.26 -- Consolidated Capital Properties IV. ****23.10.27 -- Consolidated Capital Properties V. ****23.10.28 -- Consolidated Capital Properties VI. ****23.10.29 -- Davidson Diversified Real Estate I, L.P. ****23.10.30 -- Davidson Diversified Real Estate II, L.P. ****23.10.31 -- Davidson Diversified Real Estate III, L.P. ****23.10.32 -- Davidson Growth Plus, L.P. ****23.10.33 -- Davidson Income Real Estate, L.P. ****23.10.34 -- Investors First-Staged Equity. ****23.10.35 -- Johnstown/Consolidated Income Partners. ****23.10.36 -- Multi-Benefit Realty Fund '87-1. ****23.10.37 -- Shelter Properties III. ****23.10.38 -- Shelter Properties VI. ****23.10.39 -- Shelter Properties VII Limited Partnership. ****23.10.40 -- U.S. Realty Partners Limited Partnership. *****23.11 Consents of Deloitte & Touche (Cedar-Tree Investors Limited Partnership and Wingfield Investors Limited Partnership). ****23.11.1 -- HCW Pension Real Estate Fund Limited Partnership. ****23.11.2 -- United Investors Growth Properties. ****23.11.3 -- United Investors Growth Properties II. ****23.11.4 -- United Investors Income Properties.
4353
EXHIBIT NUMBER DESCRIPTION ------- ----------- *****23.12 Consents of Reznick Fedder & Silverman (Burnsville Apartments, LP (Minneapolis Associates II Limited Partnership), Chestnut Hill Associates Limited Partnership, DFW Apartment Investors Limited Partnership, DFW Residential Investors Limited Partnership, Olde Mill Investors Limited Partnership, Park Towne Place Associates Limited Partnership and Texas Residential Investors Limited Partnership, Winthrop Apartment Investors Limited Partnership). ****23.12.1 -- Riverside Park Associates L.P. ****23.12.2 -- Springhill Lake Investors Limited Partnership. *****23.13 Consent of Barry S. Fishman & Associates (Ravensworth Associates Limited Partnership). 23.14 Consents of Imowitz Koenig LLP with respect to financial statements of the following entities: *****23.14.1 -- Winthrop Apartment Investors Limited Partnership. *****23.14.2 -- Winrock -- Houston Limited Partnership. ****23.14.3 -- Century Properties Fund XVI. ****23.14.4 -- Century Properties Fund XVIII. ****23.14.5 -- Century Properties Fund XIX. ****23.14.6 -- Century Properties Growth Fund XXII. 23.14.7 -- [Reserved]. ****23.14.8 -- Fox Strategic Housing Income Partners. ****23.14.9 -- National Property Investors 8. ****23.14.10 -- Winthrop Growth Investors 1 Limited Partnership. ****23.15.1 Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert Real Estate Associates II). *****24.1 Power of Attorney for Apartment Investment and Management Company. *****24.2 Power of Attorney for AIMCO Properties, L.P.
- --------------- * Incorporated by reference from AIMCO's Registration Statement on Form 8-A filed on July 19, 1994. ** To be filed by amendment. *** Incorporated by reference from AIMCO's Form 8-K filed on July 2, 1998. **** Filed herewith. ***** Previously filed. (b)Financial Statement Schedules Not Applicable. (c)Report, opinion or appraisal To be included in Prospectus Supplement, as applicable. EX-23.10.11 2 CONSENT OF E&Y ANGELES INCOME PROPERTIES LTD II 1 EXHIBIT 23.10.11 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Income Properties, Ltd. II and to the incorporation by reference therein of our report dated February 25, 1998, with respect to the consolidated financial statements of Angeles Income Properties, Ltd. II included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.12 3 CONSENT OF E&Y ANGELES INCOME PROPERTIES, LTD III 1 EXHIBIT 23.10.12 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Income Properties, Ltd. III and to the incorporation by reference therein of our report dated February 25, 1998, except for Note J, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Income Properties, Ltd. III included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.13 4 CONSENT OF E&Y ANGELES INCOME PROPERTIES LTD IV 1 EXHIBIT 23.10.13 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Income Properties, Ltd. IV and to the incorporation by reference therein of our report dated February 25, 1998, except for Note J, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Income Properties, Ltd. IV included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.14 5 CONSENT OF E&Y ANGELES INCOME PROPERTIES LTD 6 1 EXHIBIT 23.10.14 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Income Properties, Ltd. 6 and to the incorporation by reference therein of our report dated February 25, 1998, except for Note I, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Income Properties, Ltd. 6 included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.15 6 CONSENT OF E&Y ANGELES OPPORTUNITY PROPERTIES LTD 1 EXHIBIT 23.10.15 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Opportunity Properties, Ltd. and to the incorporation by reference therein of our report dated February 25, 1998, except for Note I, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Opportunity Properties, Ltd. included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.16 7 CONSENT OF E&Y ANGELES PARTNERS VII 1 EXHIBIT 23.10.16 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners VII and to the incorporation by reference therein of our report dated February 25, 1998, except for Note G, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Partners VII included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.17 8 CONSENT OF E&Y ANGELES PARTNERS VIII 1 EXHIBIT 23.10.17 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners VIII and to the incorporation by reference therein of our report dated February 25, 1998, except for Note H, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Partners VIII included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.18 9 CONSENT OF E&Y ANGELES PARTNERS IX 1 EXHIBIT 23.10.18 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners IX and to the incorporation by reference therein of our report dated February 25, 1998, with respect to the consolidated financial statements of Angeles Partners IX included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.19 10 CONSENT OF E&Y ANGELES PARTNERS X 1 EXHIBIT 23.10.19 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners X and to the incorporation by reference therein of our report dated February 25, 1998, except for Note J, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Partners X included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.20 11 CONSENT OF E&Y ANGELES PARTNERS XI 1 EXHIBIT 23.10.20 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners XI and to the incorporation by reference therein of our report dated February 25, 1998, except for Note H, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Partners XI included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.21 12 CONSENT OF E&Y ANGELES PARTNERS XII 1 EXHIBIT 23.10.21 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners XII and to the incorporation by reference therein of our report dated February 25, 1998 with respect to the consolidated financial statements of Angeles Partners XII included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.22 13 CONSENT OF E&Y ANGELES PARTNERS XIV 1 EXHIBIT 23.10.22 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Angeles Partners XIV and to the incorporation by reference therein of our report dated February 28, 1998, except for Note J, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Angeles Partners XIV included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.23 14 CONSENT OF E&Y CONSOLIDATED CAP. INST. PROP./2 1 EXHIBIT 23.10.23 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Consolidated Capital Institutional Properties/2 and to the incorporation by reference therein of our report dated January 23, 1998, except for Note I, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Consolidated Capital Institutional Properties/2 included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.24 15 CONSENT OF E&Y CONSOLIDATED CAP. INST. PROP./3 1 EXHIBIT 23.10.24 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Consolidated Capital Institutional Properties/3 and to the incorporation by reference therein of our report dated January 23, 1998, with respect to the consolidated financial statements of Consolidated Capital Institutional Properties/3 included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.25 16 CONSENT OF E&Y CONSOLIDATED CAPITAL PROPERTIES III 1 EXHIBIT 23.10.25 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Consolidated Capital Properties III and to the incorporation by reference therein of our report dated January 23, 1998, with respect to the consolidated financial statements of Consolidated Capital Properties III included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.26 17 CONSENT OF E&Y CONSOLIDATED CAPITAL PROPERTIES IV 1 EXHIBIT 23.10.26 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Consolidated Capital Properties IV and to the incorporation by reference therein of our report dated January 23, 1998, except for Note M, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Consolidated Capital Properties IV included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.27 18 CONSENT OF E&Y CONSOLIDATED CAPITAL PROPERTIES V 1 EXHIBIT 23.10.27 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Consolidated Capital Properties V and to the incorporation by reference therein of our report dated January 29, 1998, except for Note J, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Consolidated Capital Properties V included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.28 19 CONSENT OF E&Y CONSOLIDATED CAPITAL PROPERTIES VI 1 EXHIBIT 23.10.28 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Consolidated Capital Properties VI and to the incorporation by reference therein of our report dated January 23, 1998, with respect to the consolidated financial statements of Consolidated Capital Properties VI included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.29 20 CONSENT OF E&Y DAVIDSON DIVERSIFIED REAL ESTATE I 1 EXHIBIT 23.10.29 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Davidson Diversified Real Estate I, L.P. (A Limited Partnership) and to the incorporation by reference therein of our report dated February 25, 1998, except for Note G, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Davidson Diversified Real Estate I, L.P. (A Limited Partnership) included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.30 21 CONSENT OF E&Y DAVIDSON DIVERSIFIED REAL ESTATE II 1 EXHIBIT 23.10.30 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Davidson Diversified Real Estate II, L.P. (A Limited Partnership) and to the incorporation by reference therein of our report dated February 25, 1998, with respect to the consolidated financial statements of Davidson Diversified Real Estate II, L.P. (A Limited Partnership) included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.31 22 CONSENT OF E&Y DAVIDSON DIVERSIF'D REAL ESTATE III 1 EXHIBIT 23.10.31 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Davidson Diversified Real Estate III, L.P. and to the incorporation by reference therein of our report dated February 25, 1998, with respect to the consolidated financial statements of Davidson Diversified Real Estate III, L.P. included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.32 23 CONSENT OF E&Y DAVIDSON GROWTH PLUS LP 1 EXHIBIT 23.10.32 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Davidson Growth Plus, L.P. and to the incorporation by reference therein of our report dated January 19, 1998, except for Note G, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Davidson Growth Plus, L.P. included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.33 24 CONSENT OF E&Y DAVIDSON INCOME REAL ESTATE LP 1 EXHIBIT 23.10.33 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Davidson Income Real Estate, L.P. (A Limited Partnership) and to the incorporation by reference therein of our report dated February 25, 1998, with respect to the consolidated financial statements of Davidson Income Real Estate, L.P. (A Limited Partnership) included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.34 25 CONSENT OF E&Y INVESTORS FIRST-STAGED EQUITY 1 EXHIBIT 23.10.34 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Investors First-Staged Equity Limited Partnership and to the incorporation by reference therein of our report dated March 3, 1998, except for Note L, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Investors First-Staged Equity Limited Partnership included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.35 26 CONSENT OF E&Y JOHNSTOWN/CONSOLIDATED INCOME PART. 1 EXHIBIT 23.10.35 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Johnstown/Consolidated Income Partners and to the incorporation by reference therein of our report dated January 23, 1998, with respect to the consolidated financial statements of Johnstown/Consolidated Income Partners included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.36 27 CONSENT OF E&Y MULTI-BENEFIT REALTY FUND '87-1 1 EXHIBIT 23.10.36 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Multi-Benefit Realty Fund '87-1 and to the incorporation by reference therein of our report dated February 3, 1998, except for Note H, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Multi-Benefit Realty Fund '87-1 included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.37 28 CONSENT OF E&Y SHELTER PROPERTIES III 1 EXHIBIT 23.10.37 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Shelter Properties III Limited Partnership and to the incorporation by reference therein of our report dated January 23, 1998, with respect to the consolidated financial statements of Shelter Properties III Limited Partnership included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.38 29 CONSENT OF E&Y SHELTER PROPERTIES VI 1 EXHIBIT 23.10.38 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Shelter Properties VI Limited Partnership and to the incorporation by reference therein of our report dated December 2, 1997, with respect to the consolidated financial statements of Shelter Properties VI Limited Partnership included in its Annual Report (Form 10-KSB) for the year ended October 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.39 30 CONSENT OF E&Y SHELTER PROPERTIES VII LP 1 EXHIBIT 23.10.39 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of Shelter Properties VII Limited Partnership and to the incorporation by reference therein of our report dated January 29, 1998, except for Note F, as to which the date is March 17, 1998, with respect to the consolidated financial statements of Shelter Properties VII Limited Partnership included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.10.40 31 CONSENT OF E&Y US REALTY PARTNERS LP 1 EXHIBIT 23.10.40 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus Supplement of AIMCO Properties L.P. related to the offer to acquire units of limited partnership interest of U. S. Realty Partners Limited Partnership and to the incorporation by reference therein of our report dated February 9, 1998, except for Note I, as to which the date is March 17, 1998, with respect to the consolidated financial statements of U.S. Realty Partners Limited Partnership included in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 27, 1998 EX-23.11.1 32 CONSENT OF D&T HCW PENSION REAL ESTATE FUND LP 1 EXHIBIT 23.11.1 [DELOITTE & TOUCHE LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated February 17, 1998 (March 17, 1998 with respect to Note G), on the financial statements of HCW Pension Real Estate Fund Limited Partnership as of December 31, 1997 and for each of the two years in the period ended December 31, 1997, and to the reference to us under the heading "Experts" in the Prospectus which is part of this Registration Statement. DELOITTE & TOUCHE LLP Greenville, South Carolina October 23, 1998 EX-23.11.2 33 CONSENT OF D&T UNITED INVESTORS GROWTH PROPERTIES 1 EXHIBIT 23.11.2 [DELOITTE & TOUCHE LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated February 17, 1998 (March 17, 1998 with respect to Note K), on the financial statements of United Investors Growth Properties as of December 31, 1997 and for each of the two years in the period ended December 31, 1997, and to the reference to us under the heading "Experts" in the Prospectus which is part of this Registration Statement. DELOITTE & TOUCHE LLP Greenville, South Carolina October 23, 1998 EX-23.11.3 34 CONSENT OF D&T UNITED INVESTORS GROWTH PROP. II 1 EXHIBIT 23.11.3 [DELOITTE & TOUCHE LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated February 17, 1998 (March 17, 1998 with respect to Note H), on the financial statements of United Investors Growth Properties II as of December 31, 1997 and for each of the two years in the period ended December 31, 1997, and to the reference to us under the heading "Experts" in the Prospectus which is part of this Registration Statement. DELOITTE & TOUCHE LLP Greenville, South Carolina October 23, 1998 EX-23.11.4 35 CONSENT OF D&T UNITED INVESTORS INCOME PROPERTIES 1 EXHIBIT 23.11.4 [DELOITTE & TOUCHE LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated February 17, 1998 (March 17, 1998 with respect to Note H), on the financial statements of United Investors Income Properties as of December 31, 1997 and for each of the two years in the period ended December 31, 1997, and to the reference to us under the heading "Experts" in the Prospectus which is part of this Registration Statement. DELOITTE & TOUCHE LLP Greenville, South Carolina October 23, 1998 EX-23.12.1 36 CONSENT OF REZNICK & SILVERMAN RIVERSIDE PARK 1 EXHIBIT 23.12.1 CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS We consent to the inclusion in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated January 31, 1998, on our audit of the financial statements of Riverside Park Associates Limited Partnership ("RPALP") and to the incorporation by reference in this Registration Statement of our report dated January 31, 1998, appearing in the RPALP Annual Report on Form 10-K for the year ended December 31, 1997. We also consent to the reference to us under the heading "Experts" in the Prospectus Supplement which is part of the Form S-4 Registration Statement. REZNICK FEDDER & SILVERMAN /s/ REZNICK FEDDER & SILVERMAN October 26, 1998 EX-23.12.2 37 CONSENT OF REZNICK & SILVERMAN SPRINGHILL LAKE 1 EXHIBIT 23.12.2 CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS We consent to the inclusion in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated February 10, 1998, on our audit of the financial statements of Springhill Lake Investors Limited Partnership ("SLILP") and to the incorporation by reference in this Registration Statement of our report dated February 10, 1998, appearing in the SLILP Annual Report on Form 10-K for the year ended December 31, 1997. We also consent to the reference to us under the heading "Experts" in the Prospectus Supplement which is part of the Form S-4 Registration Statement. REZNICK FEDDER & SILVERMAN /s/ REZNICK FEDDER & SILVERMAN October 26, 1998 EX-23.14.3 38 CONSENT OF I KOENIG CENTURY PROPERTIES FUND XVI 1 EXHIBIT 23.14.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated January 23, 1998, February 11, 1997 and January 22, 1996, with respect to the financial statements of Century Properties Fund XVI for the years ended December 31, 1997, 1996 and 1995, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.14.4 39 CONSENT OF I KOENIG CENTURY PROPERTIES FUND XVIII 1 EXHIBIT 23.14.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated January 23, 1998, February 10, 1997 and January 22, 1996, with respect to the financial statements of Century Properties Fund XVIII for the years ended December 31, 1997, 1996 and 1995, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.14.5 40 CONSENT OF I KOENIG CENTURY PROPERTIES FUND XIX 1 EXHIBIT 23.14.5 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated January 30, 1998, February 18, 1997 and February 20, 1996, with respect to the financial statements of Century Properties Fund XIX for the years ended December 31, 1997, 1996 and 1995, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.14.6 41 CONSENT OF I KOENIG CENTURY PROP. GROWTH FUND XXII 1 EXHIBIT 23.14.6 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated January 17, 1998, February 14, 1997 and January 23, 1996, with respect to the financial statements of Century Properties Growth Fund XXII for the years ended December 31, 1997, 1996 and 1995, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.14.8 42 CONSENT OF I KOENIG FOX STRATEGIC HOUSING INCOME 1 EXHIBIT 23.14.8 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated January 26, 1998, February 3, 1997 and February 6, 1996, with respect to the financial statements of Fox Strategic Housing Income Partners for the years ended December 31, 1997, 1996 and 1995, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.14.9 43 CONSENT OF I KOENIG NATIONAL PROPERTY INVESTORS 8 1 EXHIBIT 23.14.9 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated January 16, 1998, February 3, 1997 and January 22, 1996, with respect to the financial statements of National Property Investors 8 for the years ended December 31, 1997, 1996 and 1995, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.14.10 44 CONSENT OF I KOENIG WINTHROP GROWTH INVESTORS 1 1 EXHIBIT 23.14.10 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our report dated February 16, 1998, with respect to the financial statements of Winthrop Growth Investors I Limited Partnership for the years ended December 31, 1997 and 1996, in the Prospectus Supplement of AIMCO Properties, L.P. /s/ IMOWITZ KOENIG & CO., LLP New York, NY October 22, 1998 EX-23.15.1 45 CONSENT OF PANNELL KERR FORSTER PC - DREXEL 1 EXHIBIT 23.15.1 Consent of Certified Public Accountants We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our report dated February 6, 1998, on our audit of the financial statements of Drexel Burnham Lambert Real Estate Associates II ("DBLREAII") appearing in the DBLREAII Annual Report on Form 10-KSB for the year ended December 31, 1997. We also consent to the reference to us under the heading "Experts" in the Prospectus Supplement which is part of the Form S-4 Registration Statement. /s/ PANNELL KERR FORSTER PC New York, New York October 26, 1998 -----END PRIVACY-ENHANCED MESSAGE-----